Good, Bad News in Euro Zone for Portugal, Slovenia, Poland

China rumored to buy Portuguese debt; Slovenia downgraded but Poland gets extra credit

The euro zone took two (small) steps forward and one step back as rumors persisted that China might buy four to five billion euros ($5.3 billion to $6.6 billion) of Portugal’s debt, and as the International Monetary Fund (IMF) gave initial approval to an increase in Poland’s flexible credit line (FCL). However, late Wednesday Slovenia received the news that its outlook was downgraded from stable to negative by Standard & Poor’s.

The original report on Wednesday about China’s willingness to invest in Portugal, according to Reuters, appeared in business daily Jornal de Negocios. However, the paper did not cite sources, nor did China comment on the purported arrangement. Portuguese government officials were not available for comment, either, and the report remained unconfirmed on Thursday morning, although the euro had gained ground on the strength of the rumor.

On Thursday, the Portuguese Court of Auditors presented a report to the president of the Portuguese Parliament, Jaime Gama (left), concerning questions it had about the state of the Portuguese budget and payments to the country's social security program.

The news about Poland was seen as a positive, since analysts said it could indicate confidence in the price of the country’s assets. According to Jacek Rostowski, Poland’s finance minister, who made the announcement on Thursday, the FCL is rising from $21 billion to $29 billion. Poland was first granted the FCL in 2009; this is in contrast to Hungary, Latvia and Lithuania having to call upon different IMF facilities that generally call for more onerous conditions to be met before funding can be released.

In explanation of the change in Slovenia’s outlook, S&P cited concerns about the country’s lack of structural measures to reduce the deficit of its government. The company did reaffirm Slovenia’s AA rating, however.

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