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November 24, 2010    

Borrowing costs surge in Spain and Portugal

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by Kay Murchie
Borrowing costs surge in Spain and Portugal

Once again, fears for Portugal and Spain are raised as borrowing costs surge to high levels as Ireland’s debt crisis looks set to spread.

Yields on 10-year Portuguese bonds rose to 6.9% - mimicking what happened in Greece and Ireland - just before they were forced to seek emergency aid. Meanwhile, 10-year Spanish bonds surged to 4.87%.

Yesterday, German Chancellor, Angela Merkel, admitted that the eurozone was “facing an exceptionally serious situation”.

Shares across the globe have been sliding as investors fear what could happen next.

On Monday, Jean-Claude Juncker, Luxembourg Prime Minister and Eurogroup Chairman, warned that Ireland’s debt crisis could spread to Portugal and Spain.

However, both countries brushed the fears aside and Portuguese Prime Minister, Jose Socrates, said it “has no need for any aid” and insisted that its difficulties are different to those in Ireland, while Spanish Foreign minister, Trinidad Jimenez, insisted the Irish deal will “stabilise” the euro zone.

However, Elizabeth Afseth, a bond expert at Evolution, said Ireland’s bailout has done nothing to reassure the markets.

In other news today, Portugal is facing its biggest strike in more than 20 years as workers protest against the Government’s austerity measures - designed to bring the budget deficit down.

Portuguese workers at ports and hospitals are taking part in the strike, while Lisbon’s metro rail service is closed and many flights from Lisbon and Oporto airports this morning have been cancelled.

Portugal’s spiralling deficit has been making markets nervous and failure to hit Government targets for bringing down the deficit could cause a market panic over the country early next year, according to economists.

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