THE EUROPEAN COMMISSION has moved to reaffirm its confidence in the Portuguese economy as the markets appear unconvinced by the Irish bailout.
Reuters reports that the Commission said Portugal is in a very different position to Ireland because its “banking sector is relatively healthy”.
It said it expects Portugal to meet its fiscal targets by adhering to its “very amibitious budget for 2011″.
The cost of insuring Portugal’s national debt climbed for a third day today, as the country announced it has a clear strategy for cutting its budget deficit and increasing economic growth, according to BusinessWeek.
Market fears: what analysts are saying
European stock and the euro fell today as the announcement of Ireland’s bailout failed to quell investor’s fears of a contagion effect spreading to Portugal and other debt-laden European economies.
The Royal Bank of Canada issued a report warning that the “Irish bailout is not a euro panacea”, according to Bloomberg. The report continued: “Pressure is reduced for now, but we expect Portugal to require assistance by February 2011 at the latest”.
John Stopford from Investec Asset Management told the Wall Street Journal: ““Portuguese spreads haven’t reached the same level of tension we’ve seen in Ireland. But … there is a sense that Portugal is not out of the woods yet and that markets need to see clear evidence they are turning things around.”
Bloomberg reports that a strategist at Matrix Corporate Capital LLP said that investors are now asking who will be next for a bailout: Italy, Spain or Portugal.
Barclays Capital said that periphery eurozone countries were “not yet out of the woods” and that market reactions for Spain and Portugal are critical, according to Reuters. Barclays Capital said: “The market has more questions than answers at the moment”.
The BBC’s business editor Robert Peston said it was foolish to expect the Irish bailout would solve the eurozone’s problems, adding that although Portugal’s debt is not to the same scale as Ireland’s, the country has “real structural problems that they will struggle to get through on their own”.
Meanwhile, Irish 10-year bonds are back up to 8.096%, cutting back on earlier gains.
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