Wednesday 18 October 2017

Portuguese bond hike revives fears over stability of eurozone

Portugal's borrowing costs soared yesterday, threatening to reignite the wider eurozone crisis after almost a year of relative calm.

The Portuguese president summoned the country's main political parties for crisis talks as a ruling coalition government teetered on the brink of collapse following the resignation of two ministers.

The shock departures are a potential trigger for a general election. That in turn could derail the country's implementation of an austerity programme overseen by the so called troika of EU/IMF officials.

Prime minister Passos Coelho has battled to keep his country on course to exit its bailout next year but measures taken are blamed for pushing Portugal deeper into its worst economic crisis since the 1970s.

As uncertainty grew, Portugal's bond and stock prices slumped. The return investors demand to hold 10-year government bonds surged to above 8.1pc for the first time since November. That is an increase of more than 1 full percentage point in a matter of just hours.

Portugal, like Ireland, is hoping to exit its bailout next year by being able to borrow in the markets – but borrowing costs of 8pc are unsustainable.

The Portuguese stock exchange dropped 6pc led by even bigger declines in the price of bank shares.

The emerging crisis dragged borrowing costs for most risky euro area countries higher including Spain and Italy which saw significant hikes in their costs of borrowing.

Irish borrowing costs rose to more than 4pc for 10-year government debt but the rise was not as sharp as across the rest of the so-called euro area periphery.

European Commission President Jose Manuel Barroso, a former Portuguese premier, said Portugal risked damaging its hard-earned financial credibility after two years of closely following its bailout programme.

Irish Independent

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