PORTUGAL 'POSTPONING THE INEVITABLE', SAYS ANALYST - In an article in today's Financial Times, EU Monetary Affairs Commissioner Olli Rehn says the effective lending capacity of the euro zone's financial rescue fund should be reinforced and the scope of its activity widened.
This is something Portugal could shortly know all about as it attempts to auction between €750m and €1.25 billion worth of five- and ten-year bonds later this morning. The outcome will be taken as a signal as to whether the country can avoid an EU/IMF rescue.
Fernando Fernández of the IE Business School in Madrid said it was obvious that the European Central Bank would help Portugal to ensure that its bond auction went well today. But he said only a presidential election in Portugal on January 23 was postponing the inevitable rescue package for the country.
Asked how the current system of financial rescue for euro zone countries should be improved, Mr Fernández said the money must come earlier for countries - and in more significant amounts. He added that it should also be lent at much more favourable interest rates, otherwise it would only add to countries' debt burdens. He also said there would have to be an acknowledgement that not all of the debts could be re-paid.
Mr Fernández said the whole debt crisis was about flaws in the design of the European monetary system from the start, and this needed to be changed to solve the problem.
This morning on the currency markets, the euro is trading at $1.2994 and 83p sterling.
