PORTUGAL hovers on the brink of “an abyss” today, according to the leader of the country’s ruling Socialist Party Francisco Assis. He gave the warning yesterday after the government failed to strike a deal on the austerity budget that it must pass today in order to stave off an EU bailout.
Negotiations were still ongoing last night as the minority government scrambled to get the necessary votes from opposition Social Democrats.
The budget aims to make cuts equivalent to 0.8 per cent of GDP with plans for further cuts at two per cent of GDP next year. Economists predict that it will exacerbate Portugal’s ongoing recession, but a failure to vote it through would almost certainly push Lisbon into seeking an EU rescue.
The uncertainty pushed yields on Lisbon’s five-year debt to new highs of 7.98 per cent yesterday as the government revised official GDP forecasts down from 0.2 per cent growth this year to a 0.9 per cent contraction.
Societe Generale chief European economist James Nixon says Lisbon has already sold €7bn (£6bn) of the €20bn debt it needs to sell this year through “arm-twisting, private placing, prayer, syndicated deals”, but that without the budget passing, a bailout “starts to look inevitable”.