Portugal's borrowing costs rise amid looming crisis
Portugal's borrowing costs have risen sharply amid fears of a growing
political crisis in the country. Yields on the country's benchmark
10-year bonds moved above 8% at one point, while the stock market
closed, down 5.3%.

A demonstrator holds a communist flag. |
Earlier last week, the resignations of two leading ministers put
pressure on Portugal's coalition government. The European Commission
President, Jose Manuel Barroso, said he was following the situation
"with concern".
Portugal received a bailout worth more than 78bn euros ($102bn;
£67bn) in May 2011, on the condition it implemented austerity measures.
Demonstrators have taken to the streets in recent days to protest
against planned austerity reforms.
Last Monday, Finance Minister Vitor Gaspar resigned, followed by
Foreign Minister Paulo Portas, who heads the Popular Party - the junior
partner in the coalition government.
The resignations came amid disagreements over Portugal's austerity
path. Prime Minister Pedro Passos Coelho has pledged to stay in office,
but it is not clear whether the Popular Party will continue to work with
him. Local media reports say that two more ministers are expected to
resign.
The President, Anibal Cavaco Silva, said he would be meeting members
of all parties, including the prime minister, in an effort to resolve
the growing crisis. Portugal has been in recession for two years and the
economy is expected to contract by 2.3% this year. The sharp rise in
bond yields suggests investors are less confident that Portugal will
repay its international debts. "The political uncertainty in Portugal
has really spooked markets," said a financial market strategist at
ETXCapital, Ishaq Siddiqi. "The spectre of another bailout for the
country increases on fears of a collapse of the government (that) will
result in the country not being able to meet its loan obligations with
its international creditors."
Yields on Spanish and Italian bonds have also risen, while the stock
markets in London, Paris and Frankfurt closed more than 1% lower.
Barroso said, "The initial reaction of the markets shows the obvious
risk that the financial credibility recently built by Portugal could be
jeopardised by the current political instability.
If this happens it would be especially damaging for the Portuguese
people, particularly as there were already preliminary signs of economic
recovery.
"This delicate situation needs a great sense of responsibility from
all political forces and leaders," he said. |