Portugal facing financial breakdown
By Barry Hatton |
March 25, 2011, Friday
|
Print Edition
Print Edition
PORTUGAL'S financial collapse appeared inevitable yesterday, as markets took the government's resignation as proof the debt-heavy country will lose its year-long battle to avoid an international bailout.
Investors pushed the interest rate on Portugal's 10-year bonds to a euro-era record of 7.71 percent - a level that is unsustainable and could force the country to ask for a rescue, like Greece and Ireland did last year.
The government quit late Wednesday after opposition parties rejected its latest debt-reduction plan, generating a new bout of market jitters.
It is unclear how soon Portugal could take a bailout, as experts say it is unlikely that an interim government will have the constitutional authority to accept a bailout on the country's behalf. Elections would not be possible before the end of May, leaving months of uncertainty ahead.
The upheaval in Portugal was a setback for European leaders trying to reassure markets about the soundness of the 17-nation eurozone. Debt problems brought down Ireland's government earlier this year after it took a bailout.
German Chancellor Angela Merkel, who has pushed her European partners to be more prudent, said yesterday that "a consistent path of consolidation and reform is essential." Events in Portugal show "how much political courage is needed when things didn't go right in the past," she told German lawmakers.
Portugal's borrowing costs have risen steadily over the past year as investors demand a high return for the risk of granting loans to a country viewed as risky because of its high debts and low growth.
The government has fought to avoid asking EU partners and the International Monetary Fund for a bailout because the package comes with fiscal conditions that limit a country's ability to set policy.
However, the Bank of Portugal predicts a double-dip recession this year as austerity measures bite into growth for years to come. Unemployment is a record 11.2 percent.
The EU has long pushed Portugal to introduce changes to its restrictive labor laws, reduce bureaucracy and trim public services.
Investors pushed the interest rate on Portugal's 10-year bonds to a euro-era record of 7.71 percent - a level that is unsustainable and could force the country to ask for a rescue, like Greece and Ireland did last year.
The government quit late Wednesday after opposition parties rejected its latest debt-reduction plan, generating a new bout of market jitters.
It is unclear how soon Portugal could take a bailout, as experts say it is unlikely that an interim government will have the constitutional authority to accept a bailout on the country's behalf. Elections would not be possible before the end of May, leaving months of uncertainty ahead.
The upheaval in Portugal was a setback for European leaders trying to reassure markets about the soundness of the 17-nation eurozone. Debt problems brought down Ireland's government earlier this year after it took a bailout.
German Chancellor Angela Merkel, who has pushed her European partners to be more prudent, said yesterday that "a consistent path of consolidation and reform is essential." Events in Portugal show "how much political courage is needed when things didn't go right in the past," she told German lawmakers.
Portugal's borrowing costs have risen steadily over the past year as investors demand a high return for the risk of granting loans to a country viewed as risky because of its high debts and low growth.
The government has fought to avoid asking EU partners and the International Monetary Fund for a bailout because the package comes with fiscal conditions that limit a country's ability to set policy.
However, the Bank of Portugal predicts a double-dip recession this year as austerity measures bite into growth for years to come. Unemployment is a record 11.2 percent.
The EU has long pushed Portugal to introduce changes to its restrictive labor laws, reduce bureaucracy and trim public services.
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