Who's next? Markets hunting for PIGS

Sean O'Grady
Tuesday 27 April 2010 00:00

The extra yield demanded by investors to take on Portuguese sovereign debt compared to safe German government Bunds rocketed to an all-time high yesterday: 205 basis points against 193 on Friday.

The credit default swaps market, which measures the cost of insuring sovereign debt, showed a similar spike: Portuguese five-year CDS rose to a record 288 basis points from 278.8 bps at the end of last week.

Expert economic opinion also seems to be turning against Portugal. Ken Rogoff, a former chief economist at the IMF and now a Harvard professor, said that Ireland, Spain and Portugal were all "conspicuously vulnerable" to a Greek-style crisis. "It's more likely than not that we'll need an IMF programme in at least one more country in the euro area over the next two to three years. The budget cuts needed in Europe in many countries are profound. The stakes are very high for Europe as it wants to avoid contagion," he said.

All the so-called PIGS – Portugal, Ireland, Greece and Spain – have high borrowing and indebtedness. Ireland's budget is the most in the red this year, at 14.3 per cent of GDP, ahead of Greece on 13.6 per cent, Spain at 11.2 per cent and Portugal's 9.4 per cent.

Most observers concede that the austerity programmes launched by Dublin, Lisbon and Madrid are more credible than those offered by the Greek government. Portugal's total debt-to-GDP ratio is 80 per cent, at the top end of what most economists think is sustainable, against 110 per cent in Greece.

Ewald Nowotny, a member of the European Central Bank's governing council, said: "With Portugal and Spain, if you look at the numbers, they're not to be compared with those of Greece ... there is no economic cause for a contagion discussion."

Register for free to continue reading

Registration is a free and easy way to support our truly independent journalism

By registering, you will also enjoy limited access to Premium articles, exclusive newsletters, commenting, and virtual events with our leading journalists

Already have an account? sign in

By clicking ‘Register’ you confirm that your data has been entered correctly and you have read and agree to our Terms of use, Cookie policy and Privacy notice.

This site is protected by reCAPTCHA and the Google Privacy policy and Terms of service apply.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in