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Portugal Said to Need as Much as $99 Billion in Bailout
A bailout for Portugal may total as much as 70 billion euros ($99 billion), said two European officials with direct knowledge of the matter.
A financial lifeline would be between 50 billion euros and 70 billion euros, said the officials who declined to be named because the issue is confidential. Portugal has not yet asked for a bailout. The figures remain preliminary, the officials said. Royal Bank of Scotland Group Plc estimates the cost of a rescue at about 80 billion euros.
Portugal moved closer to external aid after Prime Minister Jose Socrates’s offer to resign left his government in limbo on the eve of today’s European Union summit to address the region’s debt crisis. Two-year Portuguese bond yields reached the highest since 1999. The government retains its powers for now before President Anibal Cavaco Silva meets tomorrow with the main parties to resolve the political crisis or call elections.
German Chancellor Angela Merkel praised Socrates today for putting “far-reaching” austerity measures to parliament, which rejected the package last night. The vote prompted him to tender his resignation and moved the nation closer to following Greece and Ireland in requiring a bailout.
‘Pretty Inevitable’
“It’s pretty inevitable” that Portugal will need a rescue, said Jacques Cailloux, a London-based economist at RBS. “The market will deteriorate in the absence of other measures going through. There is obviously the risk of further downgrades, which will become anticipated by the markets and be a self-fulfilling prophecy.”
The yield on Portuguese two-year notes jumped 19 basis points to 6.80 percent as of 10.57 a.m. in London, and reached 6.89 percent, the highest level since the euro’s inception. The cost of insuring Portuguese government debt jumped 17.5 basis points to 552, the highest since it closed at a record 555 basis points on Jan. 10, according to CMA.
Portugal has already raised taxes and implemented the deepest spending cuts in more than three decades to convince investors it can reduce its budget shortfall. Additional cuts, announced on March 11, prompted a political backlash and failed to persuade investors.
“I regret that there wasn’t a parliamentary majority for it,” Merkel said today, outlining her stance before the two-day summit. The proposed Portuguese cuts had been supported by the EU and European Central Bank, she said.
‘Disappoint’ Markets
The spread between Portuguese and German 10-year bond yields widened 15 basis points to 439 basis points yesterday after reaching a euro-era record of 484 on Nov. 11. It was at 444 basis points today.
“This crisis occurs in the worst possible moment for Portugal,” Socrates said last night. Greece and Ireland were forced to seek bailouts last year.
“Clearly the near-term problem is that Portugal has no one with the authority to commit to a bailout,” said Paul Donovan, a global economist at UBS AG in London. “This makes any negotiations uncertain, and will disappoint market hopes for a solution by this weekend.”
The spotlight now falls on President Cavaco Silva, with JPMorgan Chase & Co. (JPM) economist Nicola Mai saying his statement stresses that Socrates still holds power as he heads into the summit that starts later today.
Deficit Cuts
It “could open the door for a possible negotiation of an international bailout package as soon as this week,” said Mai in an e-mailed note. He said further options include calling an election, which could take more than two months; asking the parties to form a coalition; or appointing an “independent technical government.”
Opposition parties united to reject additional cuts that were the equivalent of 4.5 percent of gross domestic product over three years. The government said the measures were needed to trim the deficit to 4.6 percent of GDP this year and within the EU’s 3 percent limit in 2012.
Socrates warned on March 15 that parliament rejecting the cuts would cause “a worsening of the financing risks of our economy and would lead Portugal to request external intervention.”
‘Difficult Times’
Socrates, who first came to power in 2005, leads a minority government. The Social Democrats, the biggest opposition group, had allowed the government’s earlier batch of austerity measures to pass with this year’s budget plan. They say they still support efforts to reduce the budget gap, while voting against the current package.
The Social Democrats would defeat Socrates’s Socialists if elections were held today, polls indicate. In a Feb. 25 survey published by Diario Economico, 48 percent said they supported the Social Democrats with 29 percent backing the Socialists.
“The country has faced very difficult times before and has always been able to overcome them,” Pedro Passos Coelho, the leader of the Social Democrats, said in Lisbon last night after Socrates announced his resignation.
The political crisis comes as Portugal braces for its first bond maturities of the year. Portugal faces redemptions in April and June worth about 9 billion euros in total. It also faces bill maturities in July, August, September, October and November. The country intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover maturing debt.
Rating Cuts
“Portugal faces heavy redemptions in April and June and difficult and costly access to the primary market, which makes it hard to roll over the debt,” Tullia Bucco, an economist at UniCredit SpA (UCG) in Milan, said in an e-mailed note to investors.
Concern about Portugal’s finances also led to a decline in its creditworthiness.
Portugal’s credit rating was cut two steps by Moody’s Investors Service on March 15 to A3, four steps from so-called junk status, with the outlook on the grade “negative.”
Portugal should continue to finance itself in the market at present, Finance Minister Fernando Teixeira dos Santos said on March 16, though “it’s obvious that current market conditions are unsustainable in the medium to long term.”
The ECB has prevented those yields from rising further by buying Portuguese debt in secondary markets to shore up demand. The ECB has bought about 20 billion euros of Portuguese debt since last May, Barclays Capital estimates.
“In a situation of political void, cutting a deal with the IMF and the EU to trigger financial support would be particularly cumbersome,” Gilles Moec, an economist at Deutsche Bank AG in London, said in a research note yesterday. “In the meantime, ECB intervention may be required.”
http://www.bloomberg.com/news/2011-0...l-bailout.html
A bailout for Portugal may total as much as 70 billion euros ($99 billion), said two European officials with direct knowledge of the matter.
A financial lifeline would be between 50 billion euros and 70 billion euros, said the officials who declined to be named because the issue is confidential. Portugal has not yet asked for a bailout. The figures remain preliminary, the officials said. Royal Bank of Scotland Group Plc estimates the cost of a rescue at about 80 billion euros.
Portugal moved closer to external aid after Prime Minister Jose Socrates’s offer to resign left his government in limbo on the eve of today’s European Union summit to address the region’s debt crisis. Two-year Portuguese bond yields reached the highest since 1999. The government retains its powers for now before President Anibal Cavaco Silva meets tomorrow with the main parties to resolve the political crisis or call elections.
German Chancellor Angela Merkel praised Socrates today for putting “far-reaching” austerity measures to parliament, which rejected the package last night. The vote prompted him to tender his resignation and moved the nation closer to following Greece and Ireland in requiring a bailout.
‘Pretty Inevitable’
“It’s pretty inevitable” that Portugal will need a rescue, said Jacques Cailloux, a London-based economist at RBS. “The market will deteriorate in the absence of other measures going through. There is obviously the risk of further downgrades, which will become anticipated by the markets and be a self-fulfilling prophecy.”
The yield on Portuguese two-year notes jumped 19 basis points to 6.80 percent as of 10.57 a.m. in London, and reached 6.89 percent, the highest level since the euro’s inception. The cost of insuring Portuguese government debt jumped 17.5 basis points to 552, the highest since it closed at a record 555 basis points on Jan. 10, according to CMA.
Portugal has already raised taxes and implemented the deepest spending cuts in more than three decades to convince investors it can reduce its budget shortfall. Additional cuts, announced on March 11, prompted a political backlash and failed to persuade investors.
“I regret that there wasn’t a parliamentary majority for it,” Merkel said today, outlining her stance before the two-day summit. The proposed Portuguese cuts had been supported by the EU and European Central Bank, she said.
‘Disappoint’ Markets
The spread between Portuguese and German 10-year bond yields widened 15 basis points to 439 basis points yesterday after reaching a euro-era record of 484 on Nov. 11. It was at 444 basis points today.
“This crisis occurs in the worst possible moment for Portugal,” Socrates said last night. Greece and Ireland were forced to seek bailouts last year.
“Clearly the near-term problem is that Portugal has no one with the authority to commit to a bailout,” said Paul Donovan, a global economist at UBS AG in London. “This makes any negotiations uncertain, and will disappoint market hopes for a solution by this weekend.”
The spotlight now falls on President Cavaco Silva, with JPMorgan Chase & Co. (JPM) economist Nicola Mai saying his statement stresses that Socrates still holds power as he heads into the summit that starts later today.
Deficit Cuts
It “could open the door for a possible negotiation of an international bailout package as soon as this week,” said Mai in an e-mailed note. He said further options include calling an election, which could take more than two months; asking the parties to form a coalition; or appointing an “independent technical government.”
Opposition parties united to reject additional cuts that were the equivalent of 4.5 percent of gross domestic product over three years. The government said the measures were needed to trim the deficit to 4.6 percent of GDP this year and within the EU’s 3 percent limit in 2012.
Socrates warned on March 15 that parliament rejecting the cuts would cause “a worsening of the financing risks of our economy and would lead Portugal to request external intervention.”
‘Difficult Times’
Socrates, who first came to power in 2005, leads a minority government. The Social Democrats, the biggest opposition group, had allowed the government’s earlier batch of austerity measures to pass with this year’s budget plan. They say they still support efforts to reduce the budget gap, while voting against the current package.
The Social Democrats would defeat Socrates’s Socialists if elections were held today, polls indicate. In a Feb. 25 survey published by Diario Economico, 48 percent said they supported the Social Democrats with 29 percent backing the Socialists.
“The country has faced very difficult times before and has always been able to overcome them,” Pedro Passos Coelho, the leader of the Social Democrats, said in Lisbon last night after Socrates announced his resignation.
The political crisis comes as Portugal braces for its first bond maturities of the year. Portugal faces redemptions in April and June worth about 9 billion euros in total. It also faces bill maturities in July, August, September, October and November. The country intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover maturing debt.
Rating Cuts
“Portugal faces heavy redemptions in April and June and difficult and costly access to the primary market, which makes it hard to roll over the debt,” Tullia Bucco, an economist at UniCredit SpA (UCG) in Milan, said in an e-mailed note to investors.
Concern about Portugal’s finances also led to a decline in its creditworthiness.
Portugal’s credit rating was cut two steps by Moody’s Investors Service on March 15 to A3, four steps from so-called junk status, with the outlook on the grade “negative.”
Portugal should continue to finance itself in the market at present, Finance Minister Fernando Teixeira dos Santos said on March 16, though “it’s obvious that current market conditions are unsustainable in the medium to long term.”
The ECB has prevented those yields from rising further by buying Portuguese debt in secondary markets to shore up demand. The ECB has bought about 20 billion euros of Portuguese debt since last May, Barclays Capital estimates.
“In a situation of political void, cutting a deal with the IMF and the EU to trigger financial support would be particularly cumbersome,” Gilles Moec, an economist at Deutsche Bank AG in London, said in a research note yesterday. “In the meantime, ECB intervention may be required.”
http://www.bloomberg.com/news/2011-0...l-bailout.html