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Portugal insists it will keep borrowing on markets

Published on 14/03/2011

Portuguese Finance Minister Fernando Teixeira dos Santos said Monday that Lisbon intends to keep borrowing on the commercial money markets despite sky-high interest rates.

“Our intention is to keep going to the market, borrowing the money we need,” Teixeira dos Santos said as he arrived for a eurozone finance ministers meeting, held after a summit Friday agreed on new steps to help debt-burdened member states.

Eurozone heads of state and government agreed to allow rescue funds to buy bonds issued by countries struggling with debt but on condition that they agree to austerity and other changes as part of an international rescue.

Asked if this was the most important development from the summit, the finance minister said: “Not for me.”

He stressed that the 440-billion-euro European Financial Stability Facility, and its 2013 successor the European Stability Mechanism, will only be allowed to buy bonds on the primary market — that is, direct from the issuing country.

Partners were not yet offering “a general ability for countries” to raise government funds via the EFSF or the 500-billion-euro ESM, he added.

As that “is not the case at this moment for Portugal … It is our intention to keep on going to the market.”

Speculation has increased in recent days that Portugal will follow Greece and Ireland, bailed out late last year, in being forced to accept an international rescue.

Lisbon has to pay very high rates of return to investors buying its benchmark 10-year bonds which at above 7.0 percent and more are unsustainable in the long term, especially for countries managing only slow growth.

The yield on 10-year bonds from Portugal rose to 7.479 percent at 1700 GMT Friday but eased back on Monday to 7.370 percent on the eurozone agreement to bolster the rescue funds and step up economic policy cooperation.

Eurozone leaders also decided at Friday’s summit to cut the interest rates demanded of countries that take bailout funds, chopping Greece from 5.2 percent to 4.2 percent and offering Ireland a reduction if it changes its business taxation levels. Dublin refused.

The Portuguese government forecasts 0.2 percent growth this year while the central bank forecasts a 1.3 percent contraction.

On Friday, Lisbon announced cuts in planned expenditures and plans to raise a special new tax on pensions in 2011 in order to meet the target of a public sector deficit of 4.6 percent of gross domestic product,

Portugal aims to reduce its deficit to the eurozone limit of three percent of GDP in 2012 and to two percent in 2013.

It aims to accomplish this by means of slashing spending by 2.4 percent of GDP and increasing revenue by 1.3 percent of GDP.

Upwards of 300,000 people took to the streets in Lisbon and other Portuguese cities on Saturday to protest against the cuts.