Portugal weerspreekt Griekse toestanden (en)
EUOBSERVER / BRUSSELS - Portugal on Thursday (4 November) rejected rumours that it may need a Greek-style bailout after its borrowing costs went up despite austerity measures approved this week. Ireland is also struggling with soaring interest rates for its bonds, despite slashing an extra €6 billion in government spending.
The Portuguese government "rules out the possibility of seeking external help for the financing of its economy," the executive's spokesman Pedro Silva Pereira said, as quoted by AFP.
He insisted that his country had just passed austerity measures "which the international markets themselves judge to be absolutely necessary."
But despite spending cuts of €5 billion over the next year aimed at bringing the public deficit down to 4.6 percent of GDP from 7.3 percent this year, the markets continued to put a high price on Portuguese debt.
The yield - the rate of return for investors - on the 10-year Portuguese bond jumped to 6.436 percent from 6.168 percent on Wednesday, a move Mr Pereira called "irrational."
But EU commission chief Jose Manuel Barroso, himself a former Portuguese prime minister from the party currently in opposition to premier Jose Socrates, said that markets are not 100 percent sure the government policies will work.
"There isn't yet total confidence in Portugal's capacity to realize its budget consolidation effort," he said on the fringes of a ceremony in Lisbon. "This budget is an important step but it isn't everything," he added.
By contrast, the commission hailed the Irish austerity measures passed Thursday, by saying they were "appropriate," even as borrowing rates for the country soared, following the Portuguese model.
"This provides an important anchor for financial markets and also underlines the Irish authorities' commitment to putting public debt on a sustainable downward path in the near future," EU economic and monetary affairs commissioner Olli Rehn said.
Dublin announced cuts of €6 billion from its 2011 budget, a much higher figure than expected, under austerity plans of €15 billion savings over the next four years. The country is struggling to bring the record deficit of 32 percent this year, largely due to a series of costly bank bailouts, back under the 3 percent line imposed on euro-countries.
Still, investors remained unimpressed, with the yield on Ireland's 10-year bond jumping to 7.516 percent on Thursday, up from 7.299 percent the previous day.
Yet the value of Portugal and Ireland's debt may also be influenced by EU leaders' discussions about forcing bondholders to foot some of the bill of a potential bailout, in a soon-to-be-defined permanent financial mechanism.
European Central Bank President Jean-Claude Trichet on Thursday didn't deny he told government chiefs last week that their plan would hurt the bonds of embattled euro nations by scaring off investors.
"A communication took place which was quite heavy," he said, as quoted by Bloomberg, when asked about the summit disagreement. "And I don't deny, of course, what has been said."
EU leaders agreed to create a permanent debt-crisis mechanism as of 2013, with Germany insisting that private investors should also pay their share if a bailout occurs.
German Chancellor Angela Merkel admitted last week that she and Mr Trichet had "different views" on the risk of talking about private investors footing the bill when the troubles of the eurozone were not over. Proposals are to be tabled by EU Council President Herman Van Rompuy and the EU commission in December.
Weak fringes
At the eastern fringe of the EU, new member state Romania, a non-euro country, is also struggling to meet demands by the International Monetary Fund and the EU to manage its budget deficit and overcome the lingering recession.
A next installement of the €20 billion loan will be paid in January, provided the country stops tinkering with its tax system, the IMF said.
"Constant changes are difficult to incorporate in a stable fiscal policy," Jeffrey Franks, the IMF pointman in Bucharest said earlier this week at a news conference. He also warned that political and legal uncertainties undermine stability and affect growth. "We advise you not to make significant changes ... for at least the next one or two years," he said.
In October lawmakers surprisingly approved a reduction of the sales tax on food to 5 percent, which they later said they had voted for "by mistake." President Traian Basescu has meanwhile sent the legislation back to Parliament.
Romania's economy is expected to decline by 2 percent this year, after it contracted by 7.1 percent in 2009. A second agreement with the IMF wil be negotiated next year, so as to replace the current one, which expires in April, Mr Basescu said.