July 22 2013

New Portuguese PM Passos Coelho: we must rebuild confidence. Junior partner gets responsibility for Troika talks. Relief as bond yields tumble. Analysts: 2nd bailout looks likely. Europe’s collective debt keeps rising. Protests scheduled in Greece today…


Powered by Guardian.co.ukThis article titled “Portugal’s borrowing costs slide as PM vows to stick to bailout terms – as it happened” was written by Graeme Wearden, for theguardian.com on Monday 22nd July 2013 16.00 UTC

5.17pm BST

Closing summary

That's all for the day. Here's a round-up of the main events.

Portugal's prime minister has pledged to stick to the terms of the country's bailout, after weeks of political turbulence. Pedro Passos Coelho told a press conference that he was committed to the current economic plan, and to rebuilding confidence with the rest of the world.

Passos Coelho also confirmed that his junior coalition partner would take a prime role in negotiating with its troika of lenders. (see 12.03pm onwards).

There was general relief after Portugal's president announced last night that he would not seek an early general election, following the collapse of talks over a 'National Salvation' government. (see 7.59am)

Portugal's government bonds strengthened through the day, as traders calculated that its debt was less risky. Shares in Lisbon also rallied. (see 12.12pm for details of the bond rally, and 5pm for the closing market prices).

But despite the relief, many City experts believe Portugal may need a second aid deal when its bailout runs out. See 8.53am and 10.52am for the latest analysis.

Spain's prime minister bowed to pressure over its slush fund scandal. Mariano Rajoy said he would answer questiosn on the issue in the next few weeks. (see 4.22pm onwards)

In Greece, anger over public sector job cuts has not abated. Teachers held another protest in Athens (photos at 3.04pm), while medical staff are planning a strike on Wednesday (see 2.54pm).

And the eurozone's debt pile kept growing. Total government borrowing now equals 92.2% of GDP. Greece, Spain, Ireland, Portugal and Cyprus suffered the biggest increases. (See 10.27am onwards).

I'll be back tomorrow. Until then, thanks all and goodnight. GW

5.00pm BST

Relief rally on Portuguese stock market

Portugal's PSI20 over last three months, to July 22
Portugal’s PSI20 over the last three months. Photograph: /Thomson Reuters

Portugal's stock market has posted strong gains today, on relief that the country is not lurching towards an early general election.

The PSI index closed almost 2.5% higher, led by financial stocks, with two banks posting double-digit gains.

BIggest risers on the PSI 20, July 22 2013
BIggest risers on the PSI 20, July 22 2013 Photograph: /Thomson Reuters

And Portuguese government debt rallied through the day. The yield on 10-year bonds remains sharply lower tonight at 6.39%, from nearly 7% before trading began today.

It was a quieter day in other markets, though, as the summer slowdown kicks in.

Closing prices.

• PSI 20: up 126 points at 5651, + 2.3%

• FTSE 100: down 7.5 points at 6623, -0.1%

• German DAX: down 0.5 points at 8331, – 0.01%

• French CAC: up 14 points at 3939, +0.37%

• Spanish IBEX: up 22 points at 7966, + 0.29%

• Italian FTSE MIB: up 109 points at 16233, + 0.68%

David Jones, chief market strategist at IG, sums up the situation in London:

It has been a drowsy day on the market, with the FTSE 100 drifting aimlessly for most of the day, as London enjoys what might be the end of the current heatwave. Economic data has been a touch poorer, but not bad enough to inspire panic or change expectations about central bank policy.

Overall, today’s market has something of the 'coiled spring' about it, seeming to be waiting for an excuse to move higher.

4.36pm BST

And here are the key quotes from Spanish PM Mariano Rajoy this afternoon (via Reuters)

I have talked to the head of parliament and I have told him that I would ask to appear at the end of the month or at the beginning of August.

I will appear before parliament in order to give full explanations because I believe that's where I should do it.

4.22pm BST

Rajoy will answer slush fund questions

Spanish Prime Minister  Mariano Rajoy (R), and his Romanian counterpart, Victor Ponta, during a joint press conference held after their meeting at La Moncloa Palace in Madrid, Spain, 22 July 2013.
Spanish Prime Minister Mariano Rajoy (right) with Romanian counterpart, Victor Ponta, during a joint press conference today. Photograph: BALLESTEROS/EPA

Important developments in Spain. The prime minister has announced he will appear in parliament in the next few weeks to answer questions over the slush fund scandal that has dominated Spanish politics for months.

Mariano Rajoy told a press conference this afternoon that he will answer questions over allegations that Luis Barcenas, former Popular Party treasurer, ran an illegal payments operation which benefitted top party officials, includign Rajoy himself.

The session is likely to take place at the end of July, or the beginning of August.

Rajoy announced the plan at a press confernence with the prime minister of Romania today, as journalist José Miguel Sardo explains:

Rajoy has been under mounting pressure since new documents and text messages released this month appeared to move him closer to the scandal. The PM has repeatedly denied any involvement, while avoiding answering questions about the allegations.

Many protests have taken place in Spain, with people calling for his resignation. And a poll published on Sunday found that almost 90% of Spaniards believe Rajoy should give a full account.

Sounds like they may get their wish….

4.09pm BST

On a lighter note, former Bank of England governor Sir Mervyn King has been enrolled into the House of Lords today.

Lord King (in the middle of the ermine-clad trio in the tweet above) won't be gracing the red leather benches every day — as he's also accepted a position of visiting professor at New York University's Stern School of Business and School of Law.

3.36pm BST

Key event

Open Europe, the think tank, has blogged on the latest developments in Portugal, here:

Beyond appearances, the recent political crisis has changed things in Portugal

It argues that the promotion of junior coalition leader Paulo Portas to deputy PM (see 1.10pm) with responsibility for dealing with the troika, is an important change:

Let's not forget Portas tendered his resignation from the government because he disagreed with Prime Minister Pedro Passos Coelho over the appointment of Maria Luís Albuquerque as new Finance Minister. On that occasion, Portas made clear that he was hoping for a change in the country's economic policy approach (in substance, less austerity).

That could mean further tensions between the coalition, with Portas's conservatives pushing for less austerity, while the prime minister's Social Democrats stick to the current policy.

3.04pm BST

Photos: Greek teachers protests in Athens

And here's a few photos from Athens of the protest held today by Greek schoolteachers (10.01am), against plans to move 2,000 staff in a mobility scheme, which could lead to being laid off.

A protesting high-school teacher chants slogans in central Athens, Monday, July 22, 2013.
A protesting high-school teacher chants slogans in central Athens, Monday, July 22, 2013. Photograph: Thanassis Stavrakis/AP
A teacher stands in front of riot police during a protest against public sector reforms and layoffs outside the Finance Ministry in Athens July 22, 2013.
A teacher stands in front of riot police outside the Finance Ministry. Photograph: JOHN KOLESIDIS/REUTERS
A protesting high-school teacher stands in front of riot police officers outside the Finance Ministry, in central Athens, Monday, July 22, 2013.
Photograph: Thanassis Stavrakis/AP

2.54pm BST

Greek healthcare workers to strike

More industrial unrest in Greece. Kathimerini reports that heathcare workers will be striking on Wednesday, in protest at plans to transfer workers to the new 'labour pool' (part of the programme for cutting thousands of public sector jobs)

It reports:

Public hospitals, health centers and the ambulance service will operate with skeleton staff on Wednesday due to a strike by employees.

Doctors and nurses have called the action to protest the government’s plans to place 2,500 healthcare staff in a mobility scheme which will lead to them being transferred or dismissed.

Updated at 2.54pm BST

2.38pm BST

First UK fine for high-frequency trader

Meanwhile in the City, the Financial Conduct Authority (FCA) has slapped a fine of nearly £600,000 on a high-frequency trader for manipulating the oil price.

The City watchdog has announced this lunchtime that Michael Coscia had been penalised for running an "abusive trading strategy" in which he would place a small buy order, then flood the market with large sell orders to move the oil price. The instant the buy order was taken he'd cancel the large sell orders, then repeat the process in reverse to square out the position.

That strategy yielded decent profits for Coscia, at the expense of the rest of the market. As the FCA explains (full details here):

Between 6 September 2011 and 18 October 2011 Coscia used an algorithmic programme of his own design to instigate an abusive trading strategy known as “layering”.

During this time, Coscia placed thousands of false orders for Brent Crude, Gas Oil and Western Texas Intermediate (WTI) futures from the US on the ICE Futures Europe exchange (ICE) in the UK.

Taking advantage of the price movements generated by his layering strategy, Coscia made a profit of US 9,920 over the 6 week period of trading at the expense of other market participants – primarily other High Frequency Traders or traders using algorithmic and/or automated systems.

This is the first time the FCA has taken enforcement action against a High Frequency Trader.

American regulators are also imposing financial penalties, relating to trading on US oil exchanges.

High-frequency trading uses high-powered computers, high-speed links and sophisticated algorithms to execute trades in fractions of a second. Supporters of HFT say it increases liquidity and means the gap between buy and sell orders is narrowed.

However, it has been blamed for sparking wild swings in prices, such as in the Wall Street Flash Crash of 2010.

Its critics include many MEPs, who voted last autumn to ban HFT in a clampdown on 'purely speculative' financial activity – even though it (unlike Coscia's activities) does not breach any rules. That ban has yet to come into law, and was opposed by the UK.

Updated at 2.41pm BST

1.10pm BST

Portuguese reshuffle on the way

Portugal's PM has now announced that Paulo Portas, his junior coalition partner will be given responsibility for "co-ordinating" negotiations with the Troika.

Pedro Passos Coehlo also confirmed that Portas will become Portugal's new deputy prime minister — proving that old adage that a well-timed resignation can do wonders for a career*.

It was Portas's shock decision to quit on July 2 that inflamed the crisis, a day after former finance minister Vitor Gaspar threw in the towel.

There's going to be a wider cabinet reshuffle too – but the details aren't available yet.

Latest newsflashes:


* – don't try this in the office, folks….

Updated at 1.23pm BST

12.38pm BST

Portuguese 10-year bond yields in July
Portuguese 10-year bond yields in July. Photograph: Thomson Reuters

12.33pm BST

Portuguese borrowing costs back at pre-Gaspar levels

Portuguese bond yields have now fallen back to the levels seen at the start of July, before finance minister Vitor Gaspar sparked the crisis by resigning.

12.12pm BST

Key event

Portuguese government bonds are on a roll this morning, leaping in value as investors welcome prime minister Passos Coelho's commitment to Portugal's bailout plan, and the news that early elections have been ruled out.

The yield (interest rate) on its 10-year bonds has now tumbled to 6.4%, down from 6.92% on Friday night.

Portuguese 10-year bond yields, July 22 2013
Photograph: /Thomson Reuters

12.03pm BST

Portugal’s PM: we will rebuild confidence

Portugal's prime minister has vowed to stick to the country's bailout programme, and rebuild confidence in the country following the confusion and discord of the last fortnightthree weeks.

Pedro Passos Coelho said that his government remained to delivering the targets agreed with its Troika of lenders. That includes exiting its bailout in 2014, he insisted. 

In his first speech since president Cavaco Silva ruled out early elections last night, Passos Coelho declared:

We will rebuild the confidence without raising any doubts about the process we are carrying out, saying 'yes, we want to complete the assistance programme on the agreed date'.

Passos Coelho also argued that Portugal's difficult circumstances means its auterity programme must continue, as flagged up at 11.34am.

Updated at 12.30pm BST

11.34am BST

Hot off the terminal

News flashes from Portugal:





More to follow….

11.20am BST

Worst debt/GDP performers

Another point on today's eurozone government borrowing figures (see 10.27am onwards) — the countries suffering the biggest rise in debt, as a percentage of GDP, are all in bailout programmes or trying desperately to avoid one.

Over the last year, the highest increases in the GDP/debt ratios were recorded in Greece (+24.1 percentage points), Ireland (+18.3%), Spain (+15.25%), Portugal (+14.9%) and Cyprus (+12.6%).

Across the EU, twenty-four Member States registered an increase in their debt to GDP ratio at the end of the first quarter of 2013.

The three who achieved a decrease over the last 12 months were Latvia (-5.1%), Lithuania (-1.9%) and Denmark (-0.2%). [Germany posted a fall over the last three months, but not year-on-year].

Updated at 11.25am BST

11.11am BST

The BBC's Gavin Hewitt agrees that today's eurozone debt levels (see 10.27am) shows how the region's austerity programmes have failed to lower the region's borrowing, as a percentage of national output.

Both Greece and Italy's figures show the negative impact of those austerity programmes – it's hard to cut your debt-to-GDP ratio if your economy is shrinking.

Updated at 11.17am BST

10.52am BST

Eurasia Group: Portugal unlikely to exit bailout smoothly

Back to Portugal. Mujtaba Rahman, Europe director at Eurasia Group, agrees that Pedro Passos Coelho's coalition government is unlikely to hang on until 2015.

Rahman also warns that Portugal's chances of exiting its bailout next year are receding, following the collapse of the 'national salvation' talks on Friday night (see 7.59am).

We'll get a clearer picture of the situation this autumn, when Portugal's lenders return to assess the situation, as Rahman explains:

As a result of the political impasse over the course of the last month, the eighth Troika review will now most likely take place alongside the ninth review, at some point in late September/early October.

As we've previously argued, there is implicit policy space within the program to account for the developments of recent days. The next big milestones are the passage of a number of bills related to state reform (for example, measures on voluntary dismissals; streamlining the expenditures of line ministries and pension reforms, among others) that are supposed to inform the draft budget for mid/late-October and, in so doing, the fiscal targets for 2014-15. As long as these bills are passed by the parliament by mid/late-October, the fiscal situation-at least in terms of government effort-should still be on track.

Still, given the developments of the last several weeks, this is unlikely to improve the prospects for smooth program exit and follow-up next year.

10.27am BST

Europe’s debt pile keeps growing

The collective national debt of the eurozone jumped to 92.2% of annual economic output in the first quarter of 2013, from 90.6% three months earlier.

Only two euro-area countries cut their debt, as a percentage of GDP, over the last year – Germany and Estonia – according to new data released by Eurostat this morning.

Across the wider European Union, the government debt pile rose to 85.9% in the first three months of 2013, up from 85.2% in the previous quarter.

A year ago, the eurozone debt-to-GDP ratio was 88.2%, compared to 83.3% for the EU. So, after another year of austerity programmes and a recession, Europe's debt position has worsened.

Eurostat's full release is online here, and explains:

The highest ratios of government debt to GDP at the end of the first quarter of 2013 were recorded in Greece (160.5%), Italy (130.3%), Portugal (127.2%) and Ireland (125.1%), and the lowest in Estonia (10.0%), Bulgaria (18.0%) and Luxembourg (22.4%).

Eurozone debt/GDP levels
Photograph: Eurostat

10.01am BST

Greek teachers to protest today

Over in Greece, schoolteachers are planning another protest as the first wave of public sector job losses begins.

The Federation of Secondary Schoolteachers (OLME) has called a demonstration for noon today (10am BST). It is unhappy that 2,000 teachers are being removed from their technical and vocational high schools, and transferred to the 'labour reserve'. They could be laid off early next year, if new positions have not been found for them.

OLME is planning legal action to prevent the transfers going ahead, despite MPs approving the legislation to bring in public sector job cuts last week.

Updated at 10.07am BST

9.32am BST

Portuguese debt continues to rise in value…

8.53am BST

A second bailout for Portugal? What the analysts say

Several analysts, are suggesting today that Portugal will need a second aid programme, when its existing €78bn bailout ends in 2014.

Jamie McGeever of Reuters sums up this morning's research notes:

Michael Hewson of CMC Markets commented:

With the next troika report delayed until after the German elections, both parties are expected to stagger on trying to implement the bailout agreement as the Portuguese president decides on what steps to take next. This failure to adopt consensus is becoming all too familiar in the politics of southern Europe and is likely to jeopardise any prospect of Portugal being able to return to the markets next year.

What seems more likely is that the country will probably need another bailout.

While David Buik of Panmure Gordon agrees that debt restructuring is inevitable, in Portugal and beyond:

Even if an election is avoided, Portugal economically is still hanging in rags, as is Spain and Greece!…

The sooner there is a realisation that Ireland, Portugal, Greece and probably Spain has no chance of repaying or sustaining its debt and that haircuts will need to be taken across the spectrum, the quicker we can all get on with our lives.

8.37am BST

Portuguese stock market rises

Shares have also risen on the Lisbon stock market, although we've seen more vigorous relief rallies in our time.

The PSI 20 is up 31 points at 5556, +0.57%

Most other European markets are sliding a little, but it's all rather tame:

FTSE 100: down 16 points at 6614, -0.25%

German DAX: down 6 points at 8325, – 0.1%

French CAC: down 5 points at 3920, -0.1%

Spanish IBEX: down 5 points at 7937, -0.07%

• Italian FTSE MIB: up 16 points at 16141, + 0.1%

There's little major economic news on the calendar, so it could be a quiet day in the City….

8.30am BST

Portuguese bonds strengthen

Portuguese government debt has risen in value this morning, as investors welcome the decision not to call early elections in Portugal.

This has pushed the interest rate, or yield, on Portuguese 10-year bonds down to 6.84% (as measuresd by Tradeweb), from 6.92% on Friday. Further away from the 7% 'danger zone', where a country is priced out of the markets [Portugal's immediate borrowing needs are covered by its bailout, of course].

Updated at 10.50am BST

7.59am BST

Portuguese president backs coalition after turbulent days

Portuguese President Anibal Cavaco Silva arrives prior to addressing the nation from Belem Presidential palace in Lisbon on July 21, 2013.
Portuguese president Anibal Cavaco Silva arriving to address the nation from Belem Presidential palace in Lisbon last night. Photograph: PATRICIA DE MELO MOREIRA/AFP/Getty Images

Good morning, and welcome to our rolling coverage of the latest events across the eurozone, the financial markets and the global economy.

Like the thunder over London early this morning, Portugal's political crisis is rumbling on.

After nearly three weeks of turmoil, Portuguese president Anibal Cavaco Silva has backed the present government and ruled out early elections. This despite the country's main political parties failing to agree the 'National Salvation' deal he had called for.

Speaking to the nation last night, Cavaco Silva declared:

The best solution is to keep the current government in power….

I think in the current context of national emergency, calling elections is not a solution for the problems Portugal is facing.


It is important to show our European partners that Portugal is a governable country.

Cavaco Silva adressed the Portuguese people after a week of talks between the centre-right coalition and the socialist opposition broke up without an agreement on Friday night. The Socialists, it seems, were not prepared to back Portugal's painful bailout programme.

So having failed to whisk up a government of national salvation, Cavaco Silva has now thrown his support behind prime minister Pedro Passos Coelho. He'll continue to lead the coalition, alongside deputy leader Paulo Portas whose resignation 13 days ago ignited the tinderbox of austerity fatigue and economic gloom.

By not calling for early elections, Cavaco Silva has dampened down fears over Portugal's immediate future. But its chances of returning to the financial markets in 2014 are looking thinner. Without a unity government, it will be harder to push through any further austerity measures that may be needed to keep Portugal's financial programme on track.

Unlike lightning, eurozone bailouts certainly can strike twice. Will Portugal need another?

I'll be tracking the situation in Portugal through the day, along with the latest developments across the eurozone and beyond...

Updated at 12.30pm BST

guardian.co.uk © Guardian News & Media Limited 2010

Published via the Guardian News Feed plugin for WordPress.