Today's Coming Crisis Movie

Saturday, March 12, 2011

Portugal cuts deeper as EU nations hold crisis meeting

Portugal unveiled further spending cuts on Friday to try to restore confidence in its finances as eurozone leaders met to discuss the crisis in the single currency.

The yield on Portuguese five-year debt hit a new high of 7.99pc amid mounting speculation that it will join Ireland and Greece in seeking a rescue package. Yields on Greek and Irish sovereign debt also rose, making it more expensive for them to borrow.

The euro has been falling against the dollar on growing doubts that leaders can bridge differences on how to solve the region's fiscal woes.

In a last-ditch attempt to convince investors its finances are sustainable, on Friday Portugal announced new spending cuts worth 0.8pc of GDP this year and structural reforms to push its deficit down faster. The measures include cuts in spending on social welfare and infrastructure. Changes to labour market rules are also planned, including a reduction in redundancy payments. European Monetary Affairs Commissioner Olli Rehn welcomed the "clear and important" steps.

Ireland and Greece are expected to use the meeting of the 17 euro members to argue for an easing of the terms of their rescue packages, with sources indicating some progress may be made. However, Germany doused hopes of a breakthrough on strengthening the €440bn (£380bn) rescue fund.

Chancellor Angela Merkel said that Germany would only increase its guarantees for the fund if other nations put in more capital. Instead, the focus of Friday's meeting was to make member states enshrine EU curbs on deficits and debt in national law – effectively making it illegal for any member to exceed fixed deficit and debt limits in the future. The EU's Stability and Growth Pact sets a government deficit limit of 3pc of GDP and debt of 60pc of GDP. (read more)