Debt-ridden Portugal has passed a key market test by being able to sell its benchmark 10-year government bonds at a lower interest rate than in the previous auction – 6.716 percent which was down from November’s 6.806 percent.
Demand for the bonds was strong, reducing some of the pressure on the country to seek a bailout, but Portuguese economist João Duque remained sceptical: “The needs for the funding of the Portuguese economy this year are quite strong, really strong, I estimate around 80 billion. And I don’t see how Portugal can survive during this year with interest rates of more than seven percent on the market.”
For this auction Portugal benefited from bond purchases by the European Central Bank and recent pledges of support from Japan and China.
Many believe there will have to be a bailout. Oliver Roth, an analyst with Close Brothers Seydler Bank said: “Portugal and the European Union have just gained some time. Sooner or later Portugal will have to ask for a European bailout, that’s for sure.”
But Portuguese politicians still deny that; the Finance Minister Fernando Teixeira dos Santos said Lisbon will continue to finance itself in the markets.
Prime Minister Jose Socrates repeated that the country does not need any outside help to consolidate its finances and that its budget deficit would be smaller than forecast in 2010.