Portugal may be on the way to a new bailout, says the Wall Street Journal in an opinion article by the markets editor.
Pressure from the high cost of debt financing, rising interest rates, the continuing 2016 State Budget negotiations and Fitch's decision to cut Portugal’s rating, all are putting Portugal in the centre of widespread concerns over the eurozone.
Interest on the Portuguese public debt has been under pressure, making the 'yields' higher, with concerns that sovereign debt can lose its rating of ‘investment grade.’
Citing senior economist at Capital Economics, the Wall Street Journal says that ‘things may get ugly’ in Portugal, especially if the Canadian ratings agency DBRS decides to revise Portugal’s rating downwards.
The WSJ noted that Portugal has "a left wing government that is hostile to the ratings agency which already has expressed doubts about the country’s fiscal path."
The increase in the cost of debt reflects fears that a reduction in the 'rating' by DBRS, the only one which has not put Portugal in the ‘trash’ category, will prevent Portugal from accessing the European Central Bank’s programme of asset purchases.
This also would mean that Portuguese banks will not be able to use government bonds as collateral to get cheaper loans from the ECB.
The ECB already has made exceptions, notably for Greece, but such an exception "can only be granted to countries that are under a foreign aid programme and are complying with the agreed terms."
"If the ECB stops the Portuguese bonds purchase programme, the more likely it is that investors will be concerned about the possibility of bankruptcy," the article reads.
"The result would be an increase in interest rates on Treasury bonds, possibly towards the 8% for 10 year debt, the level that forced Portugal to ask for a bailout in 2011."
Other comments from US investors have focused on the behaviour of the Bank of Portugal which not only is unable to regulate the financial sector in Portugal but is now known to rob investors, as it did when reassigning €1.8 billion in bonds back to BES from Novo Banco to make the latter's finances look better before the bank is sold on.
Serious US property investors are shy of committing to Portugal despite some prized assets being for sale, many for the first time in decades.
An unregulated market, banks handling asset sales but wanting 100% of mortgage values, assets being handled by administrators in Luxembourg with local appointees selling assets through the back door all adds up to a new wild west which established US companies are avoiding.
Comments
Portugal and others would be better off outside the Eurozone.
No 2nd Bail out or any serious attempt at re-structuring Portugal's debt will be done without the Finnish Headlock. Not known as a wrestling term but its when one country lends to another with the lending secured on the other countries assets.
Hence the Portuguese Government - having grasped what Greece has been asked to do - making stupendous efforts to hide its assets A year or so ago only apparently having one disused Lisbon courthouse that is actually 'theirs'.