Irish bailout plan fails to convince doubters in the financial markets

With a wary eye on the financial markets, fretful Spanish, Portuguese and European officials have been striving vainly today to convince the markets that neither Spain nor Portugal would follow the path of Ireland in needing a rescue package.

"There are no analogies to be made. The Irish case is very specific. In the case of Portugal, the banking sector is relatively healthy and it is resilient and it has proven [so] over the last months and so that makes it a completely different situation," Commission spokesman Amadeu Altafaj said at a regular news briefing on Monday.

Prime Minister José Sócrates also rallied to Portugal's defense. "Portugal doesn't have any problems with its financial system," he said. "Portugal doesn't need assistance from anyone and will resolve its problems."

With Ireland apparently now out of the sights of the firing squad after agreeing to accept more than 80 billion euros in assistance to help restructure its floundering financial sector, there are concerns that speculators may now fully vent their zeal on Portugal, which is considered next in line for humiliation after Greece and Ireland.

Time is also on the speculators side, with the details of the Irish deal expected to take around two weeks to negotiate. As German government spokesman Steffen Seibert pointed out on Monday, the sooner assistance is delivered to Ireland, the less the chance there is of ongoing contagion.

Ireland's acceptance of the need for external help did little to ease the pressure on the risk premiums of Spain and Portugal on Monday, while in the stock markets, Spanish and Portuguese stocks, particularly those in the financial sector, fell sharply. The euro fell against the dollar and the yen after Moody's Investors Service said it would downgrade Ireland's credit ratings by more than one notch.

Spanish markets, hit by turbulence

Spanish debt is resisting the political turbulence that has shaken the Irish government after Dublin accepted the bail-out plan from the IMF and the European Union. This morning, bond markets received the news calmly, with Irish and Spanish bonds enjoying a small improvement in risk premium. But the trend reversed slightly during the afternoon, affecting those countries more exposed to the rumours about its economy.

At around 4.30pm, Spanish risk premium was climbing, up to 210 basis points, comparing to 202 basis points last Friday. The stock markets also felt the impact of the uncertainty. The Spanish Ibex-35 index suffered its worst day since last August, and closed down 2.68 percent below the psychological barrier of 10,000 points. The Spanish stock market led all falls in the European markets.