By - Jan 10, 2011 4:44 PM GMT+0800
Germany may be softening its opposition to expanding the 750 billion-euro ($966 billion) rescue facility for indebted euro nations as investors question Portugal’s ability to avoid tapping the fund.
Chancellor Angela Merkel’s chief spokesman, Steffen Seibert, declined to repeat German objections to restocking the fund after the Handelsblatt newspaper reported European Union leaders may discuss the matter in February.
“No decision has been taken about widening the rescue fund,” Seibert said by telephone yesterday. “We should note that only a small part of the available funds has been tapped.”
Merkel has up to now opposed expanding government-funded help for debt-plagued euro nations, saying as recently as Dec. 6 that she sees no need for additional aid. With Portugal due to sell debt on Jan. 12 and Spain on Jan. 13, attention is shifting back to whether Europe is doing enough to stem the crisis.
Portuguese bonds opened lower today, with the 10-year yield sending the 10-year yield up five basis points to 7.44 percent as of 8:38 a.m. in London. The yield on 10-year Spanish bonds rose two basis points to 5.58 percent at 8 a.m. in London.
EU leaders may discuss expanding the temporary rescue fund when they next meet for a summit in February, Handelsblatt reported yesterday in an advance copy of an article in today’s edition, citing German government officials it didn’t identify. The EU could time such a pledge to coincide with granting aid to Portugal, Der Spiegel magazine reported in this week’s edition.
There are “no talks going on, nor envisaged to begin” about Portugal tapping the EU’s crisis-resolution facility. Amadeu Altafaj, spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, said today in an e-mailed statement.
Euro Drops
The euro has dropped 11 percent against the U.S. dollar over the past 12 months as investor concern over the debt levels in some euro-area states drove bond yields to records. The euro fell to $1.2867 today, the weakest level since Sept. 14, before trading little changed.
France and Germany will push Portugal to accept aid as officials in the two countries doubt the Lisbon government can raise money on capital markets much longer, Der Spiegel said.
Aid for Portugal should coincide with an agreement by the euro-area countries to provide all means necessary to safeguard the monetary union, including unlimited funds to expand the bailout facility if required, the Hamburg-based weekly said.
Seibert denied that Merkel is pressing Portugal to tap the rescue fund, saying Germany’s aim is to ensure that Prime Minister Jose Socrates persuades markets he is pursuing budget discipline.
‘Sustainable Steps’
“What’s important is that governments take sustainable steps toward more stability and competitiveness, and that the markets recognize that,” Seibert said.
The extra yield investors demand to hold 10-year Portuguese government debt instead of same maturity German bunds widened to 4.33 percentage points on Jan. 7, the most since November, as the country sought to persuade investors it can narrow its budget gap and avoid following Greece and Ireland into accepting a bailout.
“Markets won’t stay at these levels because that’s just not sustainable and if they widen much further, then we’ll soon have rescue packages for Spain and Portugal,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc, said in a research note yesterday.
“All the mechanisms are in place” to help Portugal if it asks for aid, German Finance Ministry spokesman Tobias Romeis said in a telephone interview.
To contact the reporter on this story: Tony Czuczka in Berlin at aczuczka@bloomberg.net
To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net
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