Portuguese bailout edges closer

Interest rate on Portugal’s debt soared to 5.9% for the €1bn bond auction, up from 4.3% just three weeks ago, adding to the sense of crisis in the eurozone Pressure continues to mount on the Portuguese government to accept an international bailout after the interest rate on a new debt-issue jumped to a record level on Wednesday. The €1bn (£873m) debt auction was a key test of Lisbon’s ability to raise funds in anxious financial markets. Investors bought the full allocation of Treasury bills, but following a downgrade of the country’s credit rating by Moody’s on Tuesday , the interest rate soared to 5.9% on 12-month bills, up from 4.3% just three weeks ago. Even for six-month bonds, the yield soared to more than 5%. Several of Portugal’s banks have called for the government to accept help from its eurozone partners, warning that they can no longer continue to buy up Portuguese debt. Lisbon needs to find almost €5bn in repayments this month and another €27bn in June. The banks are calling for a short-term bridging loan to tide Portugal over until a snap election is called to replace the administration of José Sócrates, who was forced to resign as prime minister after the opposition rejected his latest fiscal austerity package. They would then like to see a full bailout follow, once a new government was in place. The rising interest rate on Portuguese borrowing adds to the sense of crisis in the eurozone, amid reports that Greece is under pressure from the International Monetary Fund to default on its borrowing. The Irish government is understood to be concerned about weaker-than-expected tax revenues and the continued vulnerability of its banking sector. The fragile economic health of the single currency’s weaker members will also be in focus on Thursday, when the European Central Bank is widely expected to raise interest rates as a first step to restoring borrowing costs to normal levels. An informal meeting of European finance ministers is planned for this Friday, and they could discuss the possibility of providing short-term funds to Portugal to avoid a default in the weeks ahead. Paolo Pizzoli, of ING, said a bailout from Europe’s Financial Stability Facility (EFSF) now looked “more likely by the day”. “With the head of the opposition Passos Coelho having already opened the door to a possible EFSF tapping, in case of election victory, tactical election strategies and financial issues look set to cross over often over the next two months,” he said. European debt crisis European banks Portugal European Central Bank Europe Europe Heather Stewart guardian.co.uk

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