Crisis in Portugal worsens

PORTUGAL’S financial plight has deepened after official figures showed its budget deficit last year was 8.6% of GDP — way above the government target of 7.3% intended to ease market fears.

The estimate by the National Statistics Institute was another setback for Portugal’s struggle to avoid taking a bailout, like those Greece and Ireland accepted last year, as it faces two months without a government and debt repayments it cannot afford.

The deficit figure is far above the eurozone’s limit of 3%, though the statistics institute noted its measurements were based on new EU accounting rules which include the cost of helping banks and state companies.

Outgoing finance minister Fernando Teixeira dos Santos said without the accounting changes the deficit last year would have been 6.8%, showing his austerity measures are paying off.

Though Portugal’s economy represents less than 2% of the eurozone’s GDP, its troubles could wreck European efforts to shake off a debt crisis that has dogged the continent for more than a year.

European leaders had hoped that the rescue of Greece and Ireland would ease investor concerns.

Its financial difficulties over the past year have pushed the yield on its 10-year bond to a euro-era record of 8.26 % — an unsustainable level for the ailing country which is expected to enter a double dip recession this year.

Despite that, Portugal continued to defy predictions it will be shut out of financial markets, announcing the sale next week of up to €1bn in short-term treasury bills.

Portugal’s president was due to meet with his advisers today before probably announcing a date for the election of a new government.