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Portugal: An EU Risk Factor

ByDanske Markets
Published 09/20/2013, 06:47 AM
Updated 05/14/2017, 06:45 AM

Portugal needs to return to the market or get further assistance in 2014. A solution must be found well before June 2014 when there is a funding gap of EUR6bn.

Initial steps towards a return to the market have been taken but increased uncertainty about the government's ability to undertake necessary reforms has sent spreads higher and reduced the chances of a successful return any time soon.

However, if this fails, we are confident the EU will first improve the terms of existing funding and, if needed, also provide new loans. In our view, it would be wise for politicians not to test whether the debt crisis is still contagious.

The risk is that Portugal fails to show commitment to reforms and meets a closed door in Brussels. This has become more likely due to political resistance and constitutional rejections of austerity measures. However, we see the risk as small.

We could see government spread widening for some time but we do not expect a debt restructuring or default. Allowing Portugal more time is likely to result in an improved economic situation, while debt could start to decline. In our main scenario, the debt ratio peaks at 125.5% of GDP in 2014.

To Read the Entire Report Please Click on the pdf File Below.

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