After a Sunday report that said Portugal was under increasing pressure to accept a bailout from the European Union (EU) and International Monetary Fund (IMF), fears were great that an auction on Monday of Portuguese bonds would push that nation farther down the path of rescue. However, traders said that the European Central Bank (ECB) intervened, buying up 5- and 10-year bonds on the secondary market, and the interest rate fell.
In a Reuters report, another trader said that it appeared the ECB was also buying Irish and Greek debt; sources in the EU say that it has not yet bought Spanish debt.
Elena Salgado, economy minister of Spain, said that Portugal was keeping its commitments to reduce its budget deficit and therefore had no need to accept a bailout. The European Commission said that there were no current discussions on rescue for Portugal or, indeed, any other nation. However, a euro zone source said that preliminary talks had begun prior to the next meeting of European finance ministers Jan. 17-18, when they are scheduled to consider a greater response to the overall debt crisis.
Both economists and market analysts said that it is only a matter of time until Portugal has to resort to assistance, thanks to a stagnant economy and a high deficit. Laurence Boone, research director at Barclays Capital in Paris, said in the report, "If market spreads keep rising, Portugal has little chance of escaping a bailout."
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