EC denies bailout talks on Portugal

 

There are no discussions currently under way on an European Union/International Monetary Fund bailout of Portugal, the European Commission said today.

The Commission was responding to media reports of pressure from Germany, France and other countries on Portugal to ask for EU/IMF financial help after Lisbon's costs of borrowing on the markets have risen sharply.

"There is no discussion to this effect, and it is not envisaged at this stage, on such a possibility, be it for Portugal or any other member state," Commission spokesman Amadeu Altafaj told a regular news briefing.

Ten-year Portuguese note yields rose four basis points to 7.43 per cent by 9.30 am this morning, though it fell back to 7.076 by midday. 

Portugal, Spain and Italy are scheduled to sell debt following a slump in euro-area government bonds last week, triggered by concern over the European Union's ability to stem the crisis.

"It looks as though the market is pricing in some further deterioration in the sovereign debt story," said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. "The Portugal auction on Wednesday will be closely watched. I see euro weakness continuing."

The euro touched 106.95 yen on January 7, the lowest since September 14th. The single currency traded at $1.2892 from $1.2907, after earlier dropping to $1.2867, also the weakest since September 14th.

Portugal will sell 2014 and 2020 bonds on Wednesday while Italy will offer 2014 bonds and Spain will auction 2016 debt on Thursday. The yield on Portuguese 10-year bonds climbed as high as 7.19 per cent on Friday, the most since November 11th. The yield on Spain's 10-year bonds reached 5.54 per cent last week, the highest since December 21.

Reuters reported over the weekend that there is growing pressure on Portugal from Germany, France and other euro zone countries to seek financial help from the EU and IMF, citing a senior euro zone source.

Some preliminary discussions on the possibility of Portugal asking for help if its financing costs on markets become too high have taken place since July, the source said.

"France and Germany have indicated in the context of the Eurogroup that Portugal should apply for help sooner rather than later," the senior source said, adding Finland and the Netherlands had expressed similar views.

But Germany denied any pressure. "It is not the strategy of the German government to push Portugal to take the bailout," said Steffen Seibert, German Chancellor Angela Merkel's spokesman.

Yesterday, a Portuguese government spokesman denied a German magazine report that Lisbon was under pressure from Berlin and Paris to seek a bailout from the European Union and International Monetary Fund.

Leading Portuguese newspaper Publico on Sunday joined the ranks of those who think a bailout is inevitable. "Only a miracle will save us from the IMF," a Publico editorial read.

Bloomberg and Reuters