Business World

Saturday 27 May 2017

Portuguese hint at euro exit as cost of debt soars

Portugal's foreign minister has warned that the country may be forced to exit the euro currency if its government's austerity measures are not passed by parliament.

Luis Amado called for a wide political coalition to confront current economic challenges.

"We need to have an agreement to regain the conditions of stability to win the confidence of markets. There has to be an effort by all political groups and by the institutions to understand the gravity of the situation we're facing," he said.

Portugal may confront "a scenario of exit from the euro-zone" if it fails to tackle its economic challenges, he said.

Portugal saw a sharp loss of investor confidence in the past few weeks as concerns over fellow eurozone weakling Ireland intensified over the Budget, pushing Portugal's risk premiums to their highest levels since it adopted the euro.

"The country needs a grand coalition that allows it to get through the situation. I believe the (political) parties understand that the alternative to the situation we confront is eventually leaving the euro," he said.

"That is a situation that could inevitably be forced on us by markets to consider."

Meanwhile, the Government has rejected speculation that it was seeking a rescue before a meeting tomorrow of EU fin- ance ministers as Germany pushed for aid to calm volatility that sent borrowing costs of debt-laden countries soaring.

An Irish decision to seek financial help "is a purely political decision on the back of an assessment of the broader risk of the spread levels to economic and financial stability", said Erik Nielsen, chief European economist at Goldman Sachs in London.

Shattered banks

The premium that investors demand to hold Irish 10-year bonds over the benchmark German bonds fell to 564 basis points by the end of the week, down from a record 646 points on November 11.

While the Government has said it doesn't need to raise money until mid-2011, the State's shattered banks, which have grown increasingly reliant on the ECB, may be the focus of policy makers.

Borrowing from the ECB by Irish banks rose 7.3pc to €130bn on October 29. (Bloomberg)

Irish Independent

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