Friday, 26 November 2010

Yes You Do, No We Don't,

Portugal is now entering the first step of being bailed-out by denying that it needs one:

Portugal insisted this morning that it was under no pressure from its European Union partners to accept a multimillion euro bailout that could prevent the crisis in the eurozone spreading to its neighbour Spain.

After Financial Times Deutschland reported eurozone nations and the European Central Bank were urging Portugal to follow Ireland and capitulate to financial aid, the office of the Portuguese prime minister José Sócrates said it was "totally false" that the country was under such pressure.

Which has done nothing to lessen the markets fears:

LONDON (Dow Jones)--Denials by the Portuguese and Spanish governments that Portugal is under pressure to seek financial aid failed to prevent another sell-off in both countries' sovereign bonds Friday.

The yield premium that investors demand to hold 10-year Portuguese sovereign bonds rather than German bunds rose 12 basis points to 444 basis points, according to Tradeweb.

Spain's 10-year bund spread rose 15 basis points to a fresh euro-era record high of 267 basis points.

The contagion is gathering momentum and spreading:
"[Talk of Portugal being forced to accept aid] all looks like papering over the cracks and will not lead to any confidence in the single currency," Citigroup said in a note. "It seems that factors are lining up now to conspire against the euro. No amount of jawboning from various officials will lessen the chance of contagion spreading."
One wonders how long the EU can keep putting off the inevitable.

Update: Spain are doing the denying bit now:

MADRID (Reuters) - Spain flatly ruled out needing a bailout and said results of extra health checks on its ailing savings banks would be published next spring, as its government and central bank stepped up efforts to calm uneasy investors.

Prime Minister Jose Luis Rodriguez Zapatero said there was "absolutely" no chance Spain would need to seek outside help to manage its finances..

That's "flatly ruled out"...and..."absolutely no chance".

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