Tags: Portugal Financial Crisis

Portuguese Officials Warn of Double-Dip Recession, Big Bailout

Wednesday, 16 Feb 2011 10:55 AM

Portugal is headed for a double-dip recession, a senior official said Wednesday, with punishingly high borrowing costs and a record number of people out of work increasing chances the debt-laden country will become the next casualty of Europe's financial crisis.

Portugal is one of the 17-nation eurozone's frailest members and is widely tipped to need financial help to dig it out of a debt crisis dogging it for almost a year.

Heavily-indebted Greece and Ireland, which like Portugal racked up an unsustainable debt load, last year succumbed to market pressure and accepted financial rescue.

Discussions about how best to deal with the continent’s sovereign debt crisis, now more than a year old, have split Europe. Broadly, some countries want more help for hurting eurozone economies while others are more reluctant to shell out their taxpayers' money to rescue nations perceived as fiscally lax.

The secretary state for the treasury, Carlos Costa Pina, chided Europe for not doing more as Portugal scrambles to avoid a bailout by adopting deeply unpopular austerity measures, including pay cuts and tax hikes.

"The current level of interest rates show ... that the solution to this crisis of confidence lies not just with Portugal and that a European solution is key," he said in a communiqué. "Portugal is doing and will continue to do its work. Europe has come up short."

However, a senior Portuguese Treasury official conceded for the first time that a second recession in three years is likely in 2011, worsening the country's financial woes.

And the National Statistics Institute reported that the jobless rate last year climbed to 11.1 percent — the highest since it began collating figures in 1983.

The yield on Portuguese 10-year bonds fell slightly Wednesday, to 7.39 percent, but it was the ninth straight working day at more than 7 percent — a level the government has acknowledged cannot be sustained.

The minority government has staked its reputation on avoiding a bailout, saying its austerity measures will put Portugal back on the path to fiscal health after racking up huge debts over the past decade of anemic growth. That economic record has alarmed investors and led them to demand higher returns for lending Portugal money.

Nevertheless, Portugal's economic difficulties are set to continue at least through the end of this year, the governor of the country's central bank said in an interview published Wednesday.

A recession in 2011 will be the price of the belt-tightening measures and fiscal adjustments, Carlos Costa told Jornal Economico — contradicting the government, which has forecast growth of 0.2 percent this year, but in line with analyst predictions.

Portugal raised 1 billion euros ($1.35 billion) in 12-month Treasury bills Wednesday, granting the financially troubled country some respite from recent market pressure.

Investors charged Portugal an interest rate of 3.987 percent in the T-bill sale. That was up from 3.7 percent two weeks ago but lower than the 4.03 percent in January.

The government debt agency said there was demand for almost double the amount on offer.

Pina, the secretary state, described the terms of the debt sale as "favorable."

"From the point of view of the yield and demand, the operation went well," he told TSF radio. He said more than 60 percent of the sale went abroad.

Filipe Silva, a debt manager at Portugal's Banco Carregosa, said he was surprised by the interest rate. "Yesterday I was expecting a rate above 4 percent, in line with what was happening in the market, but it came in lower," he said.

Apart from financial markets, the minority government is feeling heat from trade unions angered by the austerity policies.

Commuters faced a second consecutive day of misery Wednesday as train ticket collectors walked off the job, forcing the cancellation of most rail services after engineers staged a strike the previous day. The national rail company said around 80 percent of trains were canceled.

The governing Socialist Party has won some political breathing space, however, as both the center-right opposition parties in Parliament say they won't support an attempt to bring down the government next month. A small, radical party intends to table a motion of no confidence March 10.

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Portugal is headed for a double-dip recession, a senior official said Wednesday, with punishingly high borrowing costs and a record number of people out of work increasing chances the debt-laden country will become the next casualty of Europe's financial crisis. Portugal...
Portugal Financial Crisis
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2011-55-16
Wednesday, 16 Feb 2011 10:55 AM
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