Brussels, 10/01/2011 (Agence Europe) - The eurozone New Year's truce is over. On Monday 10 January, the European Commission denied rumours that there have been negotiations at EU level over a possible financial aid package for Portugal. A spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn said that there had not been any talks about such a matter. On Sunday, German news magazine Der Spiegel reported on pressure on Portugal from France and Germany for it to apply for international aid following a meeting between the French and German finance ministers in Strasbourg on Friday. On Monday 17 January, it is unlikely that the Eurogroup meeting of eurozone finance ministers will avoid the question of increased tension on the eurozone sovereign debt (bonds and gilts) markets.
This will be an important week for Portugal as it tried to roll over more than a billion euros-worth of sovereign debt on the markets. The European Central Bank is reported by Reuters to be buying up Portuguese bonds. The interest rate on ten-year Portuguese treasury bonds is already above 7%, which the Portuguese government itself sees as the upper limit. Last week, Lisbon issued €500 million in 6-month bonds at 3.69%, in other words 80% higher than the previous equivalent emission early in 2010. Portugal will issue €20 billion-worth of sovereign debt bonds in 2011.
Aiming to ease fears about his country's economy, which is highly indebted and not growing very fast, Portugal's prime minister, José Socrates, said it would be able to roll over its public debt without aid and would meet its target of cutting the public deficit to 7.3% of GDP in 2010. On Monday, Spain's economics and finance minister said on Spanish radio that Portugal won't need any foreign aid. It is Spanish banks that are most exposed to the risks attached to the Portuguese economy and debt.
Addressing German parliamentarians in the CSU on Friday, the president of the ECB, Jean-Claude Trichet, called for greater eurozone budget consolidation in 2011. He said the European Commission's proposals for strengthening economic governance in the European Union did not go far enough. The European statistics office, Eurostat, recently announced lower growth forecasts than expected in the eurozone for Q310 (0.3% rather than 0.4%). (M.B./transl.fl)