13th January 2011
That Portugal has found buyers for its latest round of debt issuance is undoubtedly good news. Those buyers paid yields of 6.7% for the 10-year bonds. The Portuguese government has admitted that anything above 7% would be unsustainable, so this too is positive.
There also appears to be a number of new supporters of Eurozone bonds in the market. and. The motives of Japan and China in propping up the ailing Eurozone are open to question, but seem to centre on their being strong export markets for Asian goods.
This is all welcome, but is it enough to avert yet another debt crisis in the Eurozone? Although the Portuguese government may say that it does not need a bailout, its own central bank says its economy is shrinking , which will continue to put pressure on debt levels.
There is much discussion on the web about who is to blame. William Bishop comments lucidly on the Citywire site: "An essential in dealing with financial crises is for the relevant authorities to get "ahead of the curve" by exceeding market expectations in terms of the size and speed of response. Thanks to political fragmentation and failure to understand the characteristics of markets, the eurozone has remained obstinately behind the curve for the past year, and there is no sign of that changing." This sums up the view of many observers, who believe that the Eurozone authorities have been slow and weak in dealing with the crisis and the crisis is unlikely to dissipate until they up their game.
A number of commentators on the Wall Street Journal site have suggested that the media has had a role to play in manipulating bond markets: . This draws short shrift from commenter Jack Davidson: "Artificially manipulated? No, it's the growing realization in the market that they can't possibly pay off all of their debt. The worldwide government-backed bond Ponzi scheme era is coming to an end. Portugal is merely the next domino to fall."
For many observers, the Portuguese woes have a familiarity to them. David Scammell, head of UK and European interest rate strategies at Schroders, says that Europe's problems are not going to disappear without decisive action. He believes Portugal will require help, but Spanish debt remains the most important consideration. He adds: "To solve Europe's problems we need one of the following: more dynamic growth, better fiscal numbers or a more aggressive policy response from the ECB. Given that the first two are questionable, we believe the ECB might have to do more to ensure the survival of the Euro."