PORTUGAL HAS strengthened its determination not to follow Greece and Ireland in seeking an international financial rescue after successfully concluding a bond issue seen as a crucial test of the country’s ability to finance its debt.
The relative success of the auction, which was welcomed by the German government, helped to ease fears of a rapid spread of the euro zone debt crisis to Spain and other debt-laden economies on Europe’s periphery.
The debt issue was greeted with relief in European capitals and by the European Central Bank, which is thought to have intervened in the Portuguese government bond market before yesterday’s sale.
However, politicians and economists warned that Lisbon might still be forced to turn to the European Financial Stability Facility, the European Union’s bailout fund, if bond yields remained at current levels.
French government officials said it was unlikely that Portugal would have to seek help from the EFSF within the next 15 days.
Filipe Silva, a Lisbon-based public debt manager with Banco Carregosa, said it was a positive sign that Portugal had succeeded in selling its bonds, but yields were at a level that was “unsustainable” over the long term.
Portugal sold €1.25 billion of four-year and 10-year bonds at yields of 5.39 per cent and 6.71 per cent respectively.
Fernando Teixeira dos Santos, Portugal’s finance minister said: “The success of today’s issue shows that Portugal has the necessary conditions to finance itself in the market at prices that are not only acceptable, but favourable in the current climate.”
Portugal’s auction, the first long-term bond issue by a peripheral euro zone member this year, was welcomed by German chancellor Angela Merkel, who said it “went quite well”.
“We will stand by the euro. Germany will do whatever is necessary so that the euro remains stable,” she said.
By containing Lisbon’s borrowing costs, the ECB – which holds its first interest-rate setting meeting of 2011 today – has been able to prevent some of the gloomiest market fears about the euro zone from becoming self-fulfilling.
The ECB has not put overt pressure on Lisbon to accept a bailout, but ECB president Jean-Claude Trichet has urged euro zone governments to take whatever steps necessary to restore confidence in Europe’s 12-year-old monetary union. – (Copyright The Financial Times Limited 2011)
