Portugal's borrowing rates rise to record 19.4%
New high arrives amid fears that bailed-out country will not be able to break free of financial crisis
guardian.co.uk, Wednesday 25 January 2012 15.15 EST
A broker in a trading room of a Portuguese bank last year, when the country needed a £65bn rescue package. Photograph: Francisco Seco/AP
The threat posed to the British economy from the eurozone crisis was underlined on Wednesday when Portugal saw its borrowing costs soar to a record high amid market fears that the bailed-out country will not be able to break free of its financial crisis in the near future.
The yield, or interest rate, on three-year bonds reached 19.4%, while the rate on 10-year bonds was 14.6%, figures that compare with British rates of less than 2%.
Portugal needed a €78bn (£65bn) rescue package last year as its high debt load and feeble growth pushed it towards bankruptcy.
A three-year programme of austerity measures and economic reforms is aimed at restoring investor confidence in the country, but a deepening recession, with a 3.1% contraction forecast for this year, is undermining the faith of the markets in Portugal.
The worsening crisis in the eurozone has hit the British economy, and analysts fear that the contagion from Greece may spread throughout the eurozone and drag Britain and the rest of the world into a prolonged recession.
Antonio Barroso, an analyst with Eurasia group, said in a note that the recent downgrade and Greece's troubles "are increasing the perception that Portugal might not be able to avoid a default".
However, given Portugal's commitment to restoring fiscal health, he said: "It is likely that the government might have an easier time negotiating a new rescue package than Greece."
Portugal's government has repeatedly rejected speculation it that might try to renegotiate its bailout deal.