Eurozone hit by debt woes

Julian Harris
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DEBT crises in Greece and Portugal showed no signs of abating yesterday, yet elsewhere in the Eurozone periphery Ireland successfully accessed bond markets for the first time since its bailout.

While Ireland’s government appears to be recovering relatively well since accepting an international rescue package in 2010, Portugal may need a further €30bn in EU and IMF rescue funds, one of its chief business leaders said yesterday.

“I’ll dare to say we have a credit crunch... What is lacking is €30bn,” claimed Antonio Saraiva, head of Portugal’s main industry confederation.

Saraiva’s call echoed an earlier warning from Carlos Pina, a government official who negotiated the country’s bailout. Portugal may need a further €20-25bn in rescue funds to finance public companies, Pina has said.

Borrowing costs for the Portuguese authorities soared to a Eurozone-era record high yesterday, reflecting fears that the public finances are not sustainable.

Yields on three-year government bonds struck an eye-watering 19.4 per cent, while five-years reached 18.8 per cent.

Conversely, at an Irish bond swap, fresh three-years were made available with a yield of just 5.15 per cent – designed to tempt holders of bonds due for expiry in January 2014. In the end around 30 per cent of that debt was swapped for the new later-dated bonds, surprising on the up side.

Yet the efforts of Greek authorities to negotiate a debt swap with private holders continue to drag on. Both sides confirmed that Charles Dallara, head of the Institute of International Finance (IIF), returns to Athens today for yet another attempt to kick-start the talks.

“The government aims to complete negotiations on the debt swap as early as this week,” said government spokesman Pantelis Kapsis yesterday, remaining upbeat.

“We are now in the most delicate phase of the negotiations to complete the debt swap ... It is clear that what happens in the coming days will affect the country’s course for years,” he added.

The IIF – a body that represents private holders of Greek debt – said yesterday that it is sending a team of experts to Greece “to continue negotiations with the Greek government on legal and technical issues”.

The IIF is keen to “agree on all outstanding legal and technical issues as soon as possible,” it says.

As with the previous occasion when talks broke down, the sticking point seems to remain the rate of interest of new bonds. Private holders are said to be holding out on their “final offer” to accept new bonds that pay out four per cent.