Portugal has moved to pre-empt the threat of renewed market pressure on its borrowing costs following the emergency financial rescue of Ireland, saying it has a "clear strategy" to reduce its yawning budget deficit and implement reforms to lift economic growth.
In an effort to reassure investors that Portugal would not need a bail-out, the minority Socialist government also stressed in a statement on Monday that the country had a "resilient and well capitalised" banking sector.
The Lisbon statement came as economists said the €80bn-€90bn Irish bail-out package, aimed mainly at assisting debt-ridden banks, might not succeed in preventing the eurozone sovereign debt crisis spreading to Portugal or other vulnerable economies.
"The periphery is not yet out of the woods and the market reactions for both Spain and Portugal are critical," said Barclays Capital. "The market has more questions than answers at the moment".
On Monday Portuguese 10-year sovereign bonds were up 2 basis points to 6.53 per cent, suggesting that fiscal concerns linger.
Expectations that the Irish rescue would ease financial market pressure on other countries was "anything but sure", said Christoph Weil of Commerzbank. Rising risk premiums on Portuguese government bonds were not only attributable to the Irish crisis, but also to Portugal's domestic problems.
Fernando Teixeira dos Santos, Portugal's finance minister, said the Irish bail-out would "reduce uncertainty and strengthen market confidence" by showing that the eurozone had "adequate mechanisms for ensuring financial stability".
He insisted Portugal would meet its goal for reducing its budget deficit from a record 9.3 per cent of gross domestic product in 2009 to 7.3 per cent this year. A tough austerity budget would further cut the deficit to 4.6 pert cent of GDP in 2011.
CNN
