THE eurozone's sovereign debt storm has blown up again amid warnings that Portugal will shortly need to make a dash for the region's crisis fund.
Lisbon's cost of borrowing surged to a prohibitive 7.38pc amid signs that a flurry of activity by eurozone governments at the end of last year has given way to wrangling and uncertainty. Analysts at Citigroup warned that Portugal had become "quietly insolvent" and will soon have to access the European Financial Stability Facility.
Adding to market strains, the President of the European Central Bank told governments that they should not rely on his institution to get the region out of its debt malaise.
Speaking in Bavaria, Jean-Claude Trichet warned them that "monetary-policy responsibility cannot substitute for government irresponsibility. Europe cannot afford to rest halfway. We need to be more ambitious."
Jose Socrates, Portugal's Prime Minister, insisted yesterday that his country would hit its goal of cutting its 2010 budget deficit to 7.3pc. But the country still has to raise up to €20bn on bond markets this year, compared with less than half that sum in 2007.
Current interest rates are pushing Portugal towards the territory seen in Greece and Ireland before they sought rescues from the European authorities and the IMF. Reports yesterday that the ECB had been in the market purchasing Portuguese bonds did little to assuage market concerns.
Similarly ineffective in this respect were assurances from Safe, the body that helps oversee China's $2.65 trillion of foreign exchange reserves, that it regarded European government bonds as a key investment choice "in the past, present and future".
Willem Buiter, chief economist at Citigroup, insisted that Europe would need several sovereign debt restructurings in the coming years."
He said: "Now that the Irish Government has reached an agreement with the EU/IMF on a financial support package and associated conditionality, the market's attention will turn to Portugal, whose sovereign debt, at current levels of interest rates and growth rates, we judge to be less dramatically but quietly insolvent."
Justin Knight, head of European interest rate strategy at UBS, said that while present concerns centre on Portugal, its larger Iberian neighbour Spain was the real worry.
He said: "In the past 24 hours, markets have worsened again. Unlike with Spain or Ireland, it is hard to see how Portugal can grow its way out of this crisis.
"However, the real focal point of the crisis remains Spain because it is such a large economy. I am worried about the amount of bond issuance Spain must do this year."
He added: "If Spain needed outside help then, practically speaking, the existing rescue fund does not have adequate resources, if Portugal has already accessed it first. We would need to see a change in the eurozone's crisis response."
The euro slipped to 1.299 against the dollar and to 83.54p against sterling.
Weighing on the currency were revised figures from Eurostat, the statistical office, showing that the region's GDP grew a weaker than expected 0.3pc in the third quarter.