Portugal edges towards bailout as borrowing rate hits record high

[Hannah Bell]

Portugal edged closer to seeking a financial bailout this week, as the cost of government borrowing hit record highs.

The interest rate on 10-year bonds rose to a new euro-era record of 8.2 percent—far above levels that will enable Portugal to pay back its long term sovereign debts. According to financial analysts, Portugal’s government may run out of money within the next three months and be unable to repay a €5 billion loan due in June, tantamount to the country going into default.

Portugal is in a downward spiral. It is falling into another recession, the second in three years. This week, the Bank of Portugal revised its forecast of zero growth next year, made at the end of last year, to a 1.4 percent drop, blaming in part the effects of the austerity measures. At the same time it is calling for substantial new austerity measures to reduce the budget deficit, which will contribute to the crisis.

This year, there have already been four austerity budgets—the so-called Programmes for Stability and Growth. Failure to agree the latest budget led to the resignation of Prime Minister José Sócrates and his Socialist Party (PS) government last week, which now functions as a caretaker government until elections expected in two months time. Sócrates insisted his budget was vital to cutting the national deficit to 4.6 percent of gross domestic product this year, from last year’s estimated 7.3 percent, and to 3 percent in 2012.

http://www.wsws.org/articles/2011/mar2011/port-m31.shtml