Citing a report from the Kiel Institute for the World Economy, the Daily Telegraph reports that Portugal may be next in line to inflict haircuts on private bondholders. The report says Portugal is fighting a losing battle to contain its public debt and may be forced to restructure the current debt owed.
The report also opines that Portugal may need to impose writedowns of up to 50% on private bondholders.
According to the Kiel report, Portugal would have to run a budget surplus of over 11% per year in order to prevent the debt from overtaking the country’s finances.
"Portugal's debt is unsustainable. That is the only possible conclusion," said David Bencek, the co-author of the report.
Bencek added, "We won't know what the trigger will be but once there is a decision on Greece people are going to start looking closely and realize that Portugal is the same position as Greece was a year ago."
According to the Telegraph, yields on 5-year bonds in Portugal hit a record on Thursday at 18.9%. Thus, the bond market’s position is clear: Portugal will need a second bailout.
Recall that Portugal has already received a bailout loan package totaling €78 billion. However, according to Portuguese officials, the country did not acknowledge the liabilities of public companies when the original bailout package was developed. And given the turmoil in the bond markets, these companies are now unable to borrow money in the open capital markets.
Reuters reported that bank lending to the private sector in Portugal fell by ~€4.9 billion in December, the biggest monthly decline since the ECB began collecting the data in October 1997.
Elsewhere in Europe, Economic and Monetary Affairs Commissioner Olli Rehn said Friday that negotiators are about to close to a deal on Greece PSI, if not today, maybe over the weekend.
Recall that Greece’s private bondholders have reportedly backed down from their "final offer" of an average coupon of no less than 4% A Reuters report cited EU officials who said that the concession (talk is for an average rate of ~3.75%) could bring the projected 2020 debt down to approximately 125% of GDP, leaving a difference of approximately €15 billion in order to bring the debt-to-GDP ratio down to the needed 120%.
Rehn told Reuters Friday that Eurozone governments and EU institutions would need to make up the difference, which he noted was "not anything dramatic."
Eurogroup head Jean-Claude Juncker agreed with Rehn on Friday. In an interview published on Friday with the Austrian paper Der Standard Juncker said that Eurozone members may have to increase their financial support for Greece if both Athens and the private sector do their part to help address the country's debt crisis.
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