By Anatoly Kurmanaev
SPAIN’S Prime Minister, Jose Luis Zapatero, has rejected the need for a bailout for the Portuguese economy, which would put Spain in the firing line of the financial markets.
“Portugal has the strength, it will survive,” he said in a televised interview. “Portugal is taking all the necessary steps and is reducing its budget deficit.”
His reassurances come as Spain’s poorer neighbour prepares to launch a crucial debt issue this week.
Should the demand for Portuguese national debt prove weak, the pressure for the bailout will mount.
German and French media are already speculating that Portugal could be teetering on the edge, spelling further bad news for the euro.
If a bailout is requested, this would put Spain at the forefront of EU’s financial crisis as the next weakest country.
The financial markets, however, are already viewing Portugal’s rescue as inevitable.
Ebbing market confidence has sent the risk premiums on the country’s debt to near record levels in January, pushing interest rates on the existing 10-year bonds to over seven per cent.
“Even if the new bond issue is successful, it doesn’t mean anything, because at such interest repayment rates it’s not sustainable,” strategist Ioannis Sokos from French bank BNP Paribas told Bloomberg.
“It is inevitable that Portugal has to turn to the EU and IMF if they keep borrowing at these levels,” he added.