Portugal may need bailing out within a year, warns Olli Rehn [The Telegraph]
April 5, 2012 Leave a comment
Mr Rehn said Lisbon, which has received a €78bn (£64.5bn) rescue package, is likely to need more public support before it can return to the bond markets next year. “From the European Union side, it would be wise to be prepared. Some kind of bridge needs to be built when Portugal returns to the markets,” he said.
The warning came amid rising fears over the stability of Spain and Italy. Mario Draghi, president of the European Central Bank (ECB), said “sinner states” must execute their austerity reforms to reassure the rattled markets.
At a press conference where he said the bank’s interest rates would stay at the record low of 1pc, Mr Draghi said the jump in Spanish and Italian borrowing costs were a warning shot to Madrid and Rome. “Markets are asking these governments to deliver,” he said.
The comments reinforced the view that more help from the ECB should not be expected soon. Mr Draghi said the central bank’s long-term refinancing operation (LTRO), which has pumped €1 trillion of cheap loans into the economy, would take time to have a full impact. He said talk of an “exit strategy”, as demanded by the president of Germany’s Bundesbank, was “premature”. However, hopes of another round of LTRO were deemed unlikely, particularly while German economists continue to warn about inflation and a potential credit bubble. On Wednesday, the chief economist of Dekabank said Germany was harbouring a real estate bubble.