Portugal bail-out ‘will not lead to contagion’

Officials say Spain will not have to follow its neighbour and ask for financial help.

EU finance ministers and officials today said they believe that Portugal’s bail-out will draw a line under the eurozone’s sovereign-debt crisis.

Klaus Regling (pictured), the chief executive of the European Financial Stability Facility (EFSF) – the €440 billion fund set up in the wake of the Greek crisis last May – said there was no evidence that contagion would now spread to Spain.

He was speaking after a meeting of eurozone finance ministers near Budapest in which they agreed to a €80bn programme of financial assistance to Portugal on condition of tough new austerity measures and structural reforms.

Three eurozone member states have now needed a bail-out but Regling said that Spain – the next likely candidate for a rescue – was much better off.

He said: “The markets have reacted very positively to the Portuguese request for financial assistance.

“The dominant view from the markets is that this step ring-fences the three weaker economies in the eurozone and therefore hopes to avoid wider contagion.

“This view is very much confirmed when you look at the Spanish situation. The Spanish debt market was not affected. Risk spreads on Spanish government bonds did not move during the last few days.

“And this is against the background of Spanish spreads being reduced since the beginning of the year by about 200 basis points while the spreads on Portuguese debt went up. So there is a clear differentiation here.”

He added that the buying and selling of Spanish debt was continuing, while there remained no market for Greek and Portuguese debt.

“In general, markets today are faring much better and that’s why the risk of contagion is much less than it was six or nine months ago,” he added.

Earlier in the day Elena Salgado, Spain’s finance minister, dismissed suggestions that her country could follow Portugal in needing international aid.

She told reporters that “of course” Portugal would be the final country to need a bail-out.

Anders Borg, the finance minister of Sweden, blamed Portugal’s leaders for the possibility of contagion. He said the Portuguese government should have requested financial assistance months ago.

He said: “They’ve prolonged the crisis. Let’s hope [contagion will not spread] but this has been an ongoing crisis where a lack of political responsibility has driven the markets.

“They have wasted a lot of time with this political gridlock in Portugal, and that has cost thousands of jobs throughout Europe.”