The Socrates Affair.

Portuguese bonds fell after Prime Minister Jose Socrates raised the specter of needing a bailout and Moody’s Investors Service cut the country’s debt rating.
The yield on 10-year debt rose 3 basis points to 7.44 percent and the spread, a measure of risk, widened 2 basis points to 429 more than comparable German bunds.
Opposition lawmakers’ resistance to additional budget cuts announced last week to meet deficit targets threatens a “political crisis,” Socrates said late yesterday in Lisbon. “The consequence of a political crisis is the worsening of the financing risks of our economy and would lead Portugal to
request external intervention.”
Portugal is fighting to avoid following Greece and Ireland in seeking a rescue. Socrates is raising taxes and implementing the nation’s deepest spending cuts in more than three decades, aiming to convince investors it can narrow its pay its bills on its own.


Portugal’s credit rating was cut two steps by Moody’s Investors Service yesterday to A3, four steps from so-called junk status, with the outlook on the grade “negative.” The rating company cited Portugal’s “subdued growth prospects” and “implementation risks for the government’s ambitious fiscal consolidation targets.”

Socrates became prime minister in 2005 and his Socialist Party won re-election in 2009 without a majority in parliament. Socrates is a power freek and uses all arguments to justify corruption in all spheres of government. One example of just how bad Socrates realy is ...this week the Socrates government reduced the sales tax from 23% to 6% on all activity that involves GOLF !!! on the other hand wants to increase some basic food items from 6% to 23%.The Social Democrats agreed in October to let the government’s 2011 budget proposal pass in parliament by abstaining.

The Portuguese debt agency plans to sell today as much as 1 billion euros ($1.4 billion) of 12-month bills. Borrowing costs increased at a March 9 auction of 1 billion euros of two-year bonds, which were sold at a yield of 5.993 percent, up from 4.086 percent at a previous auction of the same-maturity debt on Sept. 8.

Portugal intends to sell as much as 20 billion euros of bonds this year to finance its budget and cover the cost of maturing debt. Portugal faced bond redemptions next month and in June totalling about 9 billion euros. It faces bill maturities in March, July, August, September, October and November.
Finance Minister Fernando Teixeira dos Santos on March 11 presented additional deficit-cutting measures equal to 4.5 percent of gross domestic product over the three years through 2013, including a reduction in pensions of more than 1,500 euros a month and further cuts in tax benefits.


The additional measures were presented hours before European Union leaders agreed to allow the region’s temporary bailout fund to tap the entire 440 billion euros of lending capacity and to enable the rescue fund to buy bonds directly at issuance from debt-swamped governments.


The Portuguese government is already trimming the wage bill by 5 percent for public-sector workers earning more than 1,500 euros a month, freezing hiring and raising value-added sales tax by 2 percentage points to 23 percent to help narrow a deficit that amounted to 9.3 percent of gross domestic product in 2009, the fourth-biggest in the euro region after Ireland, Greece and Spain.
Portugal will report a 2010 budget deficit equivalent to 7 percent of GDP or less than 7 percent, narrower than the 7.3 percent gap the government had forecast,Socrates said on Jan. 28. The government has set a target for a budget deficit of 4.6 percent of GDP in 2011, and aims to reach the EU limit of 3 percent in 2012.

The Bank of Portugal on Jan. 11 said GDP will shrink 1.3 percent in 2011 as consumer demand drops and the government cuts spending. GDP contracted 0.3 percent in the final three months of 2010, the first quarterly contraction in a year. Portugal’s unemployment rose to 11.1 percent in the fourth quarter, the highest since at least 1998.