Portugal on the brink as crisis looms

A CRUCIAL European summit in Brussels has been hijacked by the crisis embroiling Portugal after its government collapsed on Wednesday, with yields on Lisbon’s debt spiking to euro lifetime highs and expectations of a bailout mounting.

EU leaders were meeting for a second day of crisis talks today in a bid to solve the region’s debt problems.

But instead, negotiations have become mired in the prospect of another Eurozone bailout.

Portugal is being represented at the summit by Jose Socrates, acting as interim Prime Minister since a failed budget vote pushed him to resign on Wednesday. He refuses to countenance a bailout despite a credit rating downgrade by both S&P and Fitch Ratings yesterday. Yields on the country’s five-year debt yesterday surged to a high of 8.4 per cent as a result.

The chaos means that prospects of a new deal for Ireland to reduce interest payments on its rescue funds looks remote. Bill Blain, of brokerage Newedge, said: “It really feels like a new crisis is developing, but in yet another example of the euro elites delusional mindset, we’ve got Ireland being painted as a cheat for refusing... to cut its corporate tax!”

Preliminary estimates put the cost of a Portuguese bailout at around €80bn (£70bn). If Lisbon does need a rescue, the UK could be on the hook for up to 14 per cent of the costs.