EU sweats as Portuguese bid to raise €1.25 billion

THE response to Portugal’s attempt to raise €1.25 billion from the markets today will signal whether or not contagion has been contained in the euro area, but many believe it is only a matter of time until Lisbon looks to the EU for help.

The release of a report by their central bank yesterday saying the economy will shrink by 1.3% this year, immediately increased interest rates on Portuguese debt to more than 7%, above which borrowing is considered unsustainable.

The rates had dropped below the critical 7% for a time, reportedly on foot of major buying of Portuguese bonds by the ECB, which included purchases of 10-year paper. Up to now they mainly purchased only shorter term two and four-year sovereign debt.