Friday, November 26, 2010

Euro slides as Portugal bailout pressure builds

Portugal is under pressure to accept an EU bailout in order to stop the eurozone debt contagion spreading to Spain, according to German press reports that pushed the euro to a two-month low.

Portugal General Strike - AFP image
Bruno Waterfield
Telegraph

The European Central Bank is pushing Portugal to become the third eurozone country to accept an EU-IMF “rescue” because of concerns that a Portuguese debt crisis will sink its Iberian neighbour Spain.

The EU and eurozone fears that Spain, Europe’s fifth largest economy, is too big to bailout and that a Spanish crisis would tear down the European single currency.

Major European stock markets fell sharply, unsettled by the news and talk of the EU bailout fund being doubled. Spain's Ibex led the way losing 2.3pc, while bourses in London, Paris and Frankfurt were down between 1.3pc and 1.7pc. The euro hit $1.3204, its lowest since late September.


Borrowings cost in Portugal and Spain climbed, with yields on the countries' 10-year bonds near record highs.

“If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal,” unnamed sources told the Financial Times Deutschland.

The rumours mirror similar leaks and briefings three weeks that Ireland was seeking an EU bailout and despite denials from all parties the reports were later confirmed.

Portugal, like Ireland before it, has denied it is being pressured by euro zone countries and the ECB. “This news article is completely false, it has no foundation,” said a government spokesman.

But Fernando Teixeira dos Santos, Portugal’s finance minister, has hinted euro zone are pushing Portugal to accept a bailout and the loss of sovereignty that allows the EU and IMF to take over a country’s fiscal policy.

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