The European Commission today denied reports that Portugal is under pressure to seek a bail-out in order to stop the euro debt crisis from engulfing other nations such as Spain and Belgium.
'There are no such talks and there are not even any plans to have any such talks, whether it is about Portugal or another euro zone member state,' the commission's economic affairs spokesman, Amadeu Altafaj, told a news briefing. Meanwhile, tensions rose on euro zone bond markets this morning with Spanish and Portuguese debt rates hitting record levels ahead of a critical week of debt issues amid concerns that another bail-out may be looming.
The rate or yield on Spanish 10-year debt hit 5.562% from 5.526% on Friday - the highest rate since 2000. The rate on Portuguese 10-year debt rose to 7.139%, though it later fell back to just under 7.07% after traders reported that the ECB was buying bonds in the market. Investors are concerned that when Spain and Portugal issue more debt this week, they will have to offer exceptionally high interest rates to attract lenders. Much of the focus was on Portugal, following weekend reports that France and Germany were seeking to push it to accept a bail-out from the European Union and the International Monetary Fund.
Portuguese Prime Minister Jose Socrates rejected over the weekend a report by German weekly Spiegel that it was being pushed into a rescue, while Paris and Berlin also denied this. Lisbon argues its situation is different because its deficit and debt are lower, it has no property bubble and its banks are not troubled. 'Portugal will not need any external aid,' Spanish Finance Minister Elena Salgado said today when asked about the possibility. 'I think that Portugal will not need any bail-out because it its meeting its targets. It has structural weaknesses but it is carrying out the needed reforms,' she added. Fund managers will also focus on the extent to which the offers are oversubscribed or undersubscribed. Usually, debt issued by top-flight countries is oversubscribed, and the rates demanded by lenders are relatively low, because top-flight government debt is considered one of the safest investments for savings funds, banks and insurance companies needing to hold long-term, low-risk debt. On Wednesday Portugal intends to issue debt for three years and for nine years to raise €750-1.25 billion. On Thursday, Spain is to issue five-year debt to raise €2.5 billion. For several weeks, Spanish and Portuguese debt has been under heavy pressure on bond markets because these countries have big public deficits and weak prospects for growth. When investors perceive that risk attached to a government's debt has increased, they mark down the price of that debt or sell it, with the effect that the fixed interest for the life of the debt rises as a percentage of the new lower price.