Portugal pressed to accept Union bailout
Attacks against the euro persist, Berlin denies involvement
Pressure is mounting on Lisbon to seek a bailout from the EU and IMF, as Greece and Ireland did. For several months now, the country has been under speculative attacks that it will be the next to default in the euro zone.
Pressure is mounting on Lisbon to seek a bailout from the EU and IMF, as Greece and Ireland did. For several months now, the country has been under speculative attacks that it will be the next to default in the euro zone. Since July, economists and analysts' jawboning exercises negative pressure on its frail economic stability. Last week, the Portuguese cabinet again denied yet another piece of information released by the German magazine Spiegel that Berlin and Paris are strong-arming the country to seek financial rescue.
Prime Minister Jose Socrates once again stood for the nation's solvency amid speculations that Portugal will be the next euro zone member to stretch out a hand for an EU bailout. Last year's budget deficit will be far below the forecasted 7.3% of GDP, he argued. He stated his case pointing that the country does not have the kind of banking problems Ireland has.
Germany does not put pressure on Portugal to accept EU aid, German Chancellor Angela Merkel stated during a visit to Malta early last week, adding that each nation decides on its own whether it needs it or not. "Portugal has not requested help and we will not put pressure on Portugal to take such," she said at a joint press conference with Malta's Prime Minister Lawrence Gonzi.
The European Commission also announced it has no worries related to Portugal's financial health. "Such talks and not been held, nor planned," said Amadeu Altafaj, Spokesman for EU Commissioner on Economic Affairs Olli Rehn.
On Wednesday, Portugal's successful bond auction raised €1.25bn with strong demand and low yield. The auction, the first in 2011, is regarded as a test of Portugal's stability on the markets and eased the pressure on the indebted nation to e certain extent. The Public Debt Management Agency announced the sale of €650m worth of 3-year bonds, and €599m worth of 9-year bonds. The average interest for the shorter term bonds was 5.4%, compared to the 4% at the previous auction. The interest for the long-term bonds was 6.7%, compared to the 6.8% the previous time. Bids on 9-year bonds outstripped supply by 3.2 times and for 3-year papers, the ratio was 2.6 times. At the same time, the Bank of Portugal revised down its economic growth forecast for 2011, predicting 1.3% shrinking against former projections of stagnation. In late November the country adopted the 2011 budget imposing stringent austerity measures. According to these measures, Portugal will cut expenditures by some €3bn and will raise about €1.5bn from additional taxes. The government aims at reducing the nation's deficit to less than 3% by 2014 from 9.3% of GDP last year.