Portugal Says Ireland Should Focus on Euro Zone

By ART PATNAUDE and PAUL HANNON

LONDON—Portugal's finance minister said the Irish government must take into account what is best for the euro zone as well as the country when it decides whether to seek financial help from the European Union and International Monetary Fund.

Fernando Teixeira dos Santos also said that spreads on Portuguese government bonds should continue to fall in response to a statement Friday that made it clear existing bond issues won't be restructured as part of the euro zone's response to future fiscal crises.

Mr. Teixeira dos Santos is confident the government will meet its fiscal targets for both 2010 and 2011, and that the opposition party in the country is equally committed to hitting the targets. The government has said it will lower its ratio of debt to gross domestic product to 7.3% in 2010 and 4.6% in 2011, from 9.3% in 2009.

The Irish government has come under pressure from the European Central Bank and national governments to seek a bailout amid fears that the currency bloc won't survive in its current form.

Mr. Teixeira dos Santos said there has been a "contagion" effect for Portugal arising from concerns about Ireland's ability to repay its debts. "I would not want to lecture the Irish government on that," Mr. Teixeira dos Santos said. "I want to believe they will decide to do what is most appropriate together for Ireland and the euro. I want to believe they have the vision to take the right decision."

Ireland's woes aren't the only external development that has shifted the attention of investors away from the Portuguese government's new fiscal plan, to Mr. Teixeira dos Santos's evident frustration.

Led by Germany, EU leaders in late October said they would consider moves to ensure that investors share some of the burden of future fiscal crises. The statement was vague, but bond investors immediately concluded that the debts of the Irish, Portuguese and Greek governments might be restructured.

Those fears led to a surge in the spread between the yields of Portuguese and German government bonds. After much pressure from governments that were in the firing line, the finance ministers of Germany, France, Spain, Italy and the U.K. Friday issued a statement that made it clear existing bonds won't be restructured.

That produced some relief for the Portuguese government, and Mr. Teixeira dos Santos said he expects the yield on government bonds will continue to fall. "Last week's statement ... has calmed the markets," he said. "I would expect this would have a positive effect on market developments."

Irish and Portuguese yield spreads over German bunds traded tighter Monday. Irish yield spreads were trading at 5.61 percentage points at 0809 GMT, down 0.48 percentage points from Friday. The tightening was more moderate in Portuguese bonds, whose yield spreads, calculated from bid levels rather than from mid-market levels, are trading at 4.38 percentage points from 4.47 percentage points Friday.

But that episode was the latest example of euro-zone policy makers contributing to rather than easing the fiscal crisis. EU politicians have long been used to discussing various policy options in public as part of a negotiating process that is necessary in a bloc consisting of 27 members.

The euro zone—with its 16 members—has inherited that tendency. But at a time when investors are extremely nervous, the mere mention that an option is being considered may trigger a huge negative reaction.

"The way it came out, with bad communication, unclear communication, was a source of nervousness in the markets," he said. "It was a typical euro-zone statement: everyone reads into it what they want to read into it."  (Fonte: Wall Street Journal)