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Wednesday, March 09, 2011

The cost of dignity

Yesterday, Portuguese Prime Minister Jose Socrates said:
"[Portugal] would lose its prestige and (its) dignity of being able to present itself to the world as a country that succeeds in solving its problems [if it asks for a bailout]."
Today, Portugal auctioned off €1 billion in 2 year government bonds, but the Portuguese really had to pay this time. The interest rate was 5.99% which, for 2 year borrowing, is an exorbitantly high cost. Keep in mind that even with the punitive interest rates of 6% for 3 years, the current bailout loans now look relatively good value for the Portuguese.

Oh, and just in case you thought things looked better down the line: 5 year rates reached 7.82% and 10 year hit 7.70%.

The 10 year rate has been above 7%, the threshold widely accepted as being unsustainable, for 24 consecutive days; Greece and Ireland lasted 13 and 15 days respectively before asking for a bailout. The real question now is not if Portugal needs a bailout but when, and will it be enough? Surely a restructuring would do more for its long term economic stability at this point.

In any case it looks like prestige and dignity are going to hit the pockets of Portuguese taxpayers hard until a decision is made.


Anonymous said...

Portugal to take competitiveness pact to Eurozone summit on Friday http://bit.ly/gIt2mC

Unknown said...

The experience shows that the bail outs for Greece and Ireland had been ruinous.
Portugal must be out of that because, anyway, the interest even at seven point something is better that the interests that Ireland and Grrece must pay with the bail out.
The problem with Portugal, Greece, Ireland and even Spain is that it is possible to speculate against Germany by the price to speculate agains Portugal.
By other words, the Euro had a terminal illness...