Portugal Dismisses Bailout Speculation as Socrates Sees Lower 2010 Deficit

Prime Minister Jose Socrates said Portugal doesn’t need a bailout from the European Union and its 2010 budget deficit will be lower than forecast.

Socrates, in a speech in Lisbon today, said rumors that the country needs aid are only helping “speculators” while hurting Portugal and the euro. He didn’t give a new deficit figure for 2010. Emanuel Santos, Portugal’s secretary of state for the budget, said on Jan. 6 that the government had already met its target for a budget gap of 7.3 percent of gross domestic product last year.

“The budget deficit will clearly be below forecast,” Socrates said. “The country is doing its job and doing it well. Portugal will not request financial aid for the simple reason that it’s not necessary.”
Portugal tomorrow plans to sell as much as 1.25 billion euros ($1.6 billion) in debt, the first bond auction this year by any of the euro region’s most-indebted countries. The difference in yield between Portuguese 10-year bonds and German bunds, Europe’s benchmark, reached a euro-era record of 484 basis points on Nov. 11. The spread was 403 basis points today.

Austerity Measures
Portugal is raising taxes and cutting wages as it tries to convince investors it can narrow its budget gap further after the Greek debt crisis led to a surge in borrowing costs for indebted euro nations last year. Ireland in November became the second euro country after Greece to seek a bailout and the first to request aid from the European Financial Stability Facility.

German Chancellor Angela Merkel, appealing for “calm” on financial markets, said today that Portugal’s budget cuts need time to make an impact.

Portugal has, in my opinion, taken very important and decisive measures and I believe the implementation of these steps will take some time,” Merkel told reporters in Nicosia, Cyprus. The European Commission “believes that these measures are sufficient to reach the targets.”

Portuguese yields may be rising to levels that force the nation to request aid. The country’s existing 10-year debt has yielded more than 7 percent in 10 of the past 62 days, according to Bloomberg data. Greece needed a rescue within 17 days of its 10-year yield breaching 7 percent on April 6, while Ireland lasted less than a month after it cracked that level in October.

Portuguese government revenue rose more than forecast last year and spending gained less than predicted, Socrates said. Spending rose 1.7 percent in 2010, less than the 2.5 percent forecast, and revenue gained 5.3 percent, more than the 4.5 percent predicted, he said today. The government ended the year with 800 million euros more than it projected, Socrates added.

To contact the reporter on this story: Anabela Reis in Lisbon at areis1@bloomberg.net.
To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net.