Tuesday, January 11, 2011

Europe has different views on Portugal

The European Central Bank has been buying Portuguese bonds as of late.
This will keep the yields at bay, for a little while anyway. Most
market analysts believe that Portugal will need to tap the European
Financial Stability Fund, and it's best to do it sooner rather than
later. That is, however, if Berlin allows. Markets have a visceral
relation with the debt crisis, and it is clear that regardless of
whether the endangered economies are small or large, the whole of the
eurozone and European Union feel the pain. As the week opened
yesterday both the currency and the stock markets reacted to the
situation in Portugal, the Euro continued on its bearish path and the
FTSEurofirst shed 0.7%.

Next week Europe's Finance Ministers will meet, ad there is likely to
be a divergence in views. For many, the real deal, the real battle
will be that fought by Spain. For the time being, the same market
player that, overwhelmingly, believe Portugal will need a bailout,
don't believe Spain will need one. But, Elena Salgado, Spain's Finance
Minister, representing her government stated yesterday that their
Iberian neighbor wouldn't need one, that the markets would recognize
commitments being kept. It is difficult to imagine Paris and Berlin on
the one hand, and Portugal and Spain on the other, seeing eye to eye
on this one.

Support, however, is coming from other sources, China pledged last
week to buy Spanish debt, and that should show in this week's auction.
Yesterday, Japan's Finance Minister said his country would use their
Euro reserves to buy European debt as well.

Source: Fxstreet.com

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