Portugal’s crippling debt crisis grows

 

Portugal
has successfully raised about $1.4 billion but is paying a much higher interest
rate to lenders.

The
government was forced to tap the financial markets to raise money to repay
loans falling due next week.

But
Lisbon is paying yields of 5.1 per cent and 5.9 per cent to borrow money for
six and 12 months, against the 3 per cent and 4 per cent it was paying to
borrow last month.

Analysts
said paying such high rates was unsustainable for an economy that is seeing
virtually no growth.

The
rate is more than Ireland was paying before it received bail-out funds and
“implies Portugal will have to go for a rescue after its general
election” in June.

The
markets will also be watching closely to see which institutions subscribed to
the bond auction.

There
has been speculation that some of Portugal’s own banks were refusing to take
part unless Lisbon applied for a bridging loan from the eurozone’s emergency
bail-out fund.

The
government insists it does not need a bail-out.

The
jump in yields was sparked by ratings agency Moody’s downgrading Portuguese
government debt by one notch, to Baa1 from A3.

The
rating is still investment grade – but only just.

It
is the second downgrade by Moody’s in less than a month and follows fellow
agency Standard & Poor’s cut last week.

Lena
Komileva, global head of G10 strategy at Brown Brothers Harriman, said before
the auction details were released that the financial situation in Portugal
“has become critical”.

She
said: “The government is not just facing a confidence crisis; it is facing
a classic, text-book liquidity crisis in the markets.

Portugal
has to repay more than $6 billion in loans on 15 April, and then another $7
billion in June.

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