Tags: Citigroup | Buiter | Insolvent | Portugal | Loans

Citigroup's Buiter: ‘Insolvent’ Portugal Needs Loans Soon

Tuesday, 30 Nov 2010 07:25 AM

Portugal is “insolvent” and will probably need soon to join the emergency-loan program from the European Union and the International Monetary Fund that’s available to Greece and Ireland, according to Willem Buiter, Citigroup Inc.’s chief economist.

“The market’s attention is likely to turn to Portugal’s sovereign, which at current levels of interest rates and growth rates is less dramatically but quietly insolvent,” Buiter wrote in a report dated yesterday.

“We consider it likely that it will need to access the European Financial Stability Facility soon.”

The euro weakened for a third day, on concern that the region’s debt crisis is deepening. Portugal’s government bonds fell and the cost of insuring the country’s debt against non-payment with credit-default swaps rose 17 basis points to an all-time high of 557 basis points, according to CMA data.

Europe’s government debt and the euro are being dragged down by concern that Portugal and Spain may suffer the fate of Ireland, which has been given an 85 billion-euro ($111 billion) rescue package to help bail out its banks.

“Despite the recent drama, we believe we have only seen the opening act, with the rest of the plot still evolving,” Buiter wrote.

“Accessing external sources of funds will not mark the end of Ireland’s troubles. The reason is that, in our view, the consolidated Irish sovereign and Irish domestic financial system is de facto insolvent.”

This means “either the unsecured non-guaranteed creditors of the banks, and/or the creditors of the sovereign may eventually have to accept a restructuring.”

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Portugal is insolvent and will probably need soon to join the emergency-loan program from the European Union and the International Monetary Fund that s available to Greece and Ireland, according to Willem Buiter, Citigroup Inc. s chief economist. The market s attention...
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2010-25-30
Tuesday, 30 Nov 2010 07:25 AM
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