EU Asks Portugal to Brace for Cuts as Market Sounds Budget Alarm

  • Dijsselbloem, Schaeuble say turmoil shows need for discipline
  • Portugal's 10-Year bond yields highest in almost two years

Almost two years after Portugal completed its bailout program, European officials are warning it to prepare for more budget cuts as a market rout sends the nation’s bond yields to the highest level since 2014.

“We will strongly encourage our Portuguese colleagues not to stray from the successful path they’ve taken,” German Finance Minister Wolfgang Schaeuble said in Brussels on Thursday before a meeting of euro-area finance ministers. “We see that the markets are already getting nervous.”

Portugal’s benchmark 10-year bond plunged on Thursday, pushing the yield to as high as 4.53 percent. The yield pared its rise to 4.09 percent at 3:22 p.m. in Lisbon. Poised for a sixth day of losses, the bond turmoil is adding to pressure on Prime Minister Antonio Costa’s minority government.

Portugal needs to “stand ready” to rein in spending if it can’t meet European Union targets, according to Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area ministers’ group. Other nations in similar straits need to follow suit, he told reporters when asked if sudden yield swings should justify relaxing the budget standards.

“That would be another reason to be quite concise and committed to the economic policy of the monetary union and the budget rules of the monetary union,” Dijsselbloem said. Portugal’s new government has committed to strive for the targets, which should give a “signal of confidence” to investors, he said.

The hard line from Dijsselbloem and Schaeuble contrasted with comments from Italy, Spain and Portugal, where ministers argued that this week’s market volatility isn’t linked to a distinct factor.

“There are no specific reasons in the euro area” for the selloff, Spanish Economy Minister Luis de Guindos told reporters. “There has been no piece of news in recent days that would change things in any country in the euro area.”

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