A senior euro zone source was reported Sunday to say that France and Germany, as well as other euro zone nations, are pressuring Portugal to take a bailout, although Lisbon denies that such action is necessary.
While Germany denied the report, according to Reuters, the pressure is building on Lisbon to accept help from the European Union (EU) and the International Monetary Fund (IMF) in the wake of a sharp rise in Portuguese 10-year bonds.
At the end of last week, yields were at euro lifetime highs above 7%, with the yield of 5-year Portuguese bonds on the secondary market at 6.43% and 10-year paper trades at 7.26%. With Portugal scheduled to hold a bond auction in the coming week, the question is how long the nation will be able to sustain such high costs.
The source said, "France and Germany have indicated in the context of the Eurogroup that Portugal should apply for help sooner rather than later," and added that the Netherlands and Finland had also been of the same opinion.
While a Portuguese government spokesman said earlier in the day that Paris and Berlin were pushing for action, and a German finance minister said, "Germany is not pushing anyone to accept a bailout," an editorial in the Portuguese newspaper Publico said, "Only a miracle will save us from the IMF."
It is believed that if Lisbon accepts a bailout, it will mean protection for Spain, but so far the country has resisted. The source said, "The real battle will be the battle of Spain—but there I think we have much higher chances of success." If Spain has to be bailed out, it will strain the resources of the IMF.
In a Reuters poll last week of economists, almost all said that Portugal would have to be rescued. But another senior euro zone source said, "Portugal has not requested it—you cannot force somebody to want something. Strictly arithmetically speaking, it would not be necessary, but given the hysterics of some market participants it may become useful."
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