Portugal in line to receive EU/IMF bailout: economists

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November 24, 2010 19:40

A young man plays music to receive donations from members of the public in Lisbon, Portugal. Photo - Tom Sparks

Who: Portuguese government.

What: According to a Reuters poll of economists, Portugal is likely to follow Greece and Ireland in near future and ask bailout funds from the European Union and the International Monetary Fund. Thirty-four out of the 50 analysts who took part in the poll said Lisbon would be forced to seek outside financial help.

Where: Reuters asked its worldwide panel of economists for their opinion on the Irish bailout and its implications on other ailing eurozone economies, especially the Portuguese economy.

When: The report was published on Wednesday, 24 November.

Why: Like Ireland and Greece, Portugal this year announced unprecedented budget austerity measures aimed at convincing financial markets it can deal with its debt burden itself while issuing bonds at affordable rates. Silvio Peruzzo, an economist at Royal Bank of Scotland (RBS), believes the cost of funding has gone to prohibitive levels for Portugal and it is impossible to think they could continue to roll over their debt next year if market interest rates remain where they are now. The Italian economist believes that countries like Greece, Ireland and now Portugal have seen a structural economic shift and are now moving into a new equilibrium of poor economic growth and higher funding costs that ultimately requires outside help.

How: Portuguese economy’s health came under question when its bond yield spread over 10-year German government bonds – a measure of the pressure markets are putting on Lisbon and the chances of default – touched a euro-lifetime record of 481 basis points on Wednesday. However, the EU President Herman Van Rompuy insisted there is no need for Portugal to seek outside help, explaining that its circumstances are very different from Ireland’s.

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