Eurozone crisis fears return

11th February 2011

The European Central Bank has been buying up Portugal's debt as fears grow that the eurozone crisis could yet claim a third economy.

As reported on FT.com the ECB resumed buying Portuguese bonds as after a rise in the yield on 10-year Portuguese bonds to 7.63%; the highest level since it became a founder member of the single currency.

The Portuguese government blamed speculation for the increase and urged for a "return to normality".

Political uncertainty is also thought to have unnerved investors, who dumped bonds this week over a threatened vote of no confidence in the minority socialist government of the prime minister, José Sócrates and its austerity budget.

Traders are concerned about Portugal's ability to refinance almost €10bn (£8.5bn) of debt that matures this spring, with the lack of confidence underlined by the poor performance of a syndicated bond launched by the government this week.

The eurozone has enjoyed had a breathing space but doubts are again surfacing about the ability of some of the weaker economies to cope with pressures from the financial markets. Portugal's neighbour, Spain, is seen as the next likely target for speculative attack but there are also concerns that its political vacuum and high debt levels make Belgium vulnerable, reported in the Guardian.

On Marketwatch the community are keen for a solution rather than a quick fix to the Eurozone's woes:

VegasTom says: "The ECB would rather forget about Portugal, but the ECB needs to stop putting band aids on the problem and work toward a blanket solution because as developments continue fear is eased for a few weeks and then it is back to square one."

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