Eurozone dominoes teeter on the brink

Steve Dinneen
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PORTUGAL’S future was hanging by a thread last night as ministers desperately tried to deflect fears it will be the next Eurozone domino to fall.

Portugal’s Prime Minister Jose Socrates was defiant, claiming: “The country does not need any help... What the country needs is to do what is necessary, to approve the budget, and to continue in its efforts.”

But markets reacted negatively, credit default swaps (CDS) tied to Portuguese debt jumped 29.5 basis points to a one-week high of 447 basis points. CDS on Greek government debt, the first nation to receive a Eurozone bailout, rose 37 basis points to over 1,000, meaning bond-holders will have to pay more than €1m (£850,000) to insure €10m of Greece’s debt.

Portugal’s problems are structurally different to those of Ireland and Greece. However, it is struggling to meet a target of lowering its deficit to 7.3 per cent of GDP this year. If the target is missed, it could push its debt servicing costs to unsustainable levels.