By CHRIS GRAEME chris.graeme@theresidentgroup.com
Despite government insistence that Portugal will not need the help of either the European Union or International Monetary Fund to solve its liquidity problems, pressure mounted this week on Portugal to prepare for a bailout package.
On Monday, one of the Bank of Portugal’s top directors, Teodora Cardoso, admitted that preparations for IMF help were underway and said “it would be easier if we accepted outside help”.
Meanwhile, also on Monday, both Germany’s Chancellor Angela Merkel and France’s Finance Minister Christine Lagarde denied that either country was putting pressure on Portugal to accept an IMF bailout which could total €45 billion to €70 billion.
Speculation was fuelled over the weekend by a leading article in German current affairs magazine Der Spiegel which claimed that Germany and France want to push Portugal to seek a bailout from the EU’s rescue fund to stop the debt crisis from spreading to countries like Spain and Belgium.
Portuguese Prime Minister José Sócrates denied any such pressure but even so the cost of servicing Portuguese 10-year sovereign bonds soared over the seven per cent barrier by Monday and the Euro fell against the US dollar and Sterling to a four-month low.
According to Der Spiegel and Reuters, Germany and France want to urge Portugal to seek a bailout as soon as possible from the €750 billion rescue fund set up in May by the European Union and International Monetary Fund.
The report in Der Spiegel quoted experts from both governments who said they did not believe Portugal would be able to borrow funds on the capital markets much longer.
Last week Portugal had to pay an interest rate of 3.69% for six-month bonds it issued last week – Germany only has to pay 2.87% on its six-month bonds. Portuguese 10-year bonds soared to 7.25%.
And the fact that technical preparations for the entry of the IMF into Portugal are already underway mean that a formal discussion between EU finance ministers is increasingly likely.
There was also bad news for Portugal’s banking sector, too, as the worsening of the sovereign debt crisis in January increased shareholder losses as Portuguese bank shares took a hammering.
The three main Portuguese banks quoted have seen the value of their shares plummet during the first sessions of this year to one-tenth of their capitalisation.
Banco Espírito Santo led the fall by losing 5.88% of its value in recent days after already having lost 13.29% in January and an accumulated loss of 37% in 2010.
BPI slid 4.4% on Monday while BCP plummeted 3.1% with both banks seeing 9.24% and 10.1% respectively wiped off the value of shares since the start of the year.
On Monday, the Governor of the Bank of Portugal (BdP), Carlos Costa, said that the “Portuguese had the capacity to resolve its own problems and rejected an intervention from the IMF”.
But minutes later, one of his top directors, Teodora Cardoso, said exactly the opposite to journalists at a conference in Lisbon, saying it would be “easier if Portugal accepted help now”.
However, analysts say it may be difficult to force Portugal to accept help from the IMF given that the Vice President of the European Central Bank, Vítor Constâncio, is Portuguese as is the President of the European Commission, José Manuel Durão Barroso.
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