Portugal debt fears remain

PORTUGAL was forced to offer higher rates to sell short-term debt yesterday despite confirmation of a €78bn (£70.1bn) bailout deal, underlining continued anxiety that the country will be pushed into a debt restructuring.

Portugal raised €1.1bn at an auction of three-month Treasury bills at an average yield of 4.65 per cent, higher than the 4.05 per cent at its 20 April auction, while bond yields eased only sightly. Markets are cautious ahead of a rescue package that is not yet approved by either the main opposition parties, or fellow Eurozone members. There is concern that Finland, one of six nations in the Eurozone with a triple A credit rating, may object.

Under the terms of the three-year bailout (see below), €12bn – around 15 per cent – is earmarked to shore up Portuguese banks and help them push their tier one capital levels to ten per cent by the end of next year. Caretaker Prime Minister Jose Socrates said the package was more lenient than that negotiated by Greece and Ireland, but crucially the interest rate at which the loans will be offered is yet to be agreed.