Portugal Suffering Greek Contagion Puts Pressure on EU Markets -

Bloomberg:

Greek bonds tumbled yesterday, pushing yields to the highest since at least 1998, on speculation over the timing of the European Union bailout package for Greece. Portuguese spreads, the extra yield that investors demand to hold its debt rather than German equivalents, jumped to 218 basis points, the most since at least 1997.

Portuguese Prime Minister Jose Socrates’ push to convince investors his country will avoid Greece’s fate is being hobbled by an economy that’s expanded less than an annual average of 1 percent for a decade and is reliant on tourism and industries such as cork and pulp.

While Portugal’s public debt of 77 percent of gross domestic product is on a par with that of France, the burden including corporate and household debt exceeds that of Greece and Italy, at 236 percent of GDP. The savings rate is the fourth-lowest among 27 members of the Organization of Economic Cooperation and Development, according to the Paris-based group’s data.

No Growing

“The reason we’re concerned about Portugal is not because its public sector debt ratios are excessively high, it’s more that the Portuguese economy doesn’t really grow,” said Kenneth Wattret, chief euro region economist at BNP Paribas SA in London.

EU policy makers’ difficulty in containing the Greek crisis is stoking the threat of contagion, just as the near-collapse of Bear Stearns Cos. in 2008 undermined other U.S. banks, exacerbating the credit crisis.

The risk for Portugal is that investors who are trying to protect their portfolios from a Greek-like rout will dump holdings of small euro countries, such as Portugal. Once that happens, surging bond yields could put Portugal in the same spiral that Greece is trying to escape.

‘Conspicuously Vulnerable’

Portugal is among countries that are “conspicuously vulnerable” and may need a bailout, said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, in a telephone interview.

Posted via email from Jim Nichols