Thursday, March 24, 2011

Portugal’s debt crisis worsens after government quits

LISBON, PORTUGAL—Portugal's financial collapse appeared inevitable on Thursday, as markets took the government's resignation as proof the debt-heavy country will lose its year-long battle to avoid a bailout and deliver another setback to Europe's efforts to boost confidence in the euro.

Investors fearful about Portugal's future pushed the interest rate on its 10-year bonds to a euro-era record of 7.71 per cent — a financial burden that is unsustainable and could soon force the country to ask for a rescue like Greece and Ireland did last year.

The government quit late Wednesday after opposition parties rejected its latest debt-reduction plan, generating a new bout of market jitters over the country's future and likely shortening the time it can hold out before asking for help.

Juergen Michels, an economist at Citigroup in London, said a bailout for Portugal is firmly on the cards.


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