Portugal request financial assistance from the European Central Bank
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Portugal request financial assistance and The European Central Bank set for Interest Rate Increase
Will Spain be next?
On the 6th of April 2010, Portugal has bowed to recent pressure and request financial assistance from the European Commission. Early reports from Brussels have indicated that the financial package will be in the sum of € 75 billion, a little less then the € 85 billion agreed by Ireland 2010. The reaction to this announcement has been somewhat muted as this action has been signalled and the markets have expected this for some time. The International Monetary Fund has recently stated that it was ready to assist Portugal although it had not yet received any request. There had been mounting speculation that Portugal would need outside help to resolve its debt problems as the markets piled the pressure on, demanding ever higher rates of return to invest in new government debt instruments. It will become clearer in the coming days what the financial package will be developed to assist Portugal.
In addition, The European Central Bank has indicated that it will raise its interest rates for the first time since July 2008. Financial observers are curious how big the increase shall be and will it trigger a series of interest rate hikes that will make matters extremely difficult for countries like Portugal, Ireland and Greece to resolve their on going financial difficulties. This rate has also been indicated by ECB President Jean Claude Trichet since March 2010 as inflation has increased well beyond the banks target of just below 2%. The prospect of an ECB rate hike has pushed the euro towards $1.43 and “if markets remain convinced that the ECB is about to embark on a series of rate hikes, the regions fiscal crises will worsen”.
Higher rates could hit several different European Countries via home owners who have taken out mortgages with floating interest rates while the stronger euro will dent export earnings.
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