–But Notes That It Has Become More Difficult For the Country To Borrow

LISBON (MNI) – Bank of Portugal Governor Carlos Costa Friday noted
his country’s fundamental dilemma, observing that external financing is
“very relevant” because of insufficient savings but that it has become
more difficult for Portugal to borrow in global capital markets.

Speaking at an event sponsored by a body that promotes trade
between Spain and Portugal, Costa noted, “the Portuguese economy does
not manage enough savings.”

He said the four national “imperatives” for Portugal now are to
achieve fiscal sustainability, increase the savings rate of families,
strengthen the stability of the country’s financial system and
rationalize the use of resources and investment.

With regard to Portugal’s current debt and deficit problems, which
have lead recently to a punishing increase in yields on its sovereign
securities, Costa, who also sits on the ECB Governing Council, said: “We
urgently need a budget that is approved, political agreement and an
institutional framework that produces figures that are balanced and well
done in order to create confidence.”

He reiterated the recent decision to create an independent fiscal
council in Portugal, noting that, the “reliability of our numbers is
very important. We have to give the idea that we are following our
numbers closely.”

Dragged into the undertow swirling around Ireland in the past two
weeks, Portugal has seen spreads on its sovereign debt skyrocket against
the benchmark German Bund in recent sessions.

The renewed pressure on Portugal, Ireland, Greece, and even Spain,
has been attributed to a German proposal that would put private
creditors on the hook in future sovereign bailouts. Hoping to calm
market nerves, EU finance ministers put out a statement overnight at the
G20 summit in Seoul in which they reiterated that no current holder of
sovereign EMU bonds would be asked to take a hit.

The plan for private creditor contribution, they assured, would
only affect new bonds issued after mid-2013, when the new bailout
mechanism currently being discussed would take effect.

The statement worked, at least for now, as spreads on sovereign EMU
peripheral bonds narrowed sharply and yields retreated. Portugal’s
two-year bond, which had been at stiff 5.37% on Thursday, was back down
to 4.30% Friday afternoon, a huge shift. The 10-year bond yield also
dropped sharply.

[TOPICS: M$$EC$,M$X$$$,M$$CR$,MT$$$$,MGX$$$]