04/07/2013 World Business Report

financial news with Sally Bundock and World Business Report.

Crisis talks in Portugal as politicians try to keep the

coalition government together - amid rising opposition to austerity.

Also, why exchange rate tensions between the US and China could be

easing. We'll have the latest in our series

Welcome to World Business Report. I'm Sally Bundock - also in the

programme: Portugal's president is holding emergency meetings later

today with the country's prime minister and members of parliament

to try and settle a growing political crisis. Two top ministers

have already resigned this week over increasingly unpopular austerity

reforms tied to Portugal's $100 billion bailout - raising fears the

governing coalition will collapse - and the country will be pushed back

towards bankruptcy. Those fears were clearly felt on financial markets on

Wednesday. The yield on Portugal's 10-year bond, in other words the

return investors demand to hold the Portuguese debt, soared above 8%.

The country's main share index the PSI 20 slumped to close down 5.3%.

Here's the BBC's Alison Roberts in Lisbon.

By two's president is calling on representatives of all the political

parties that sit in Parliament for talks on the ongoing political

crisis. He has the power to dissolve Parliament, but will be reluctant to

call early elections if there are any chances that the coalition can

be patched together. The talks come at against a backdrop of slumping

markets. Investors reactions were a clear sign that they are losing

confidence in Portugal's commitment. We need to find a

solution to the crisis. It increases the pressure to find a solution to

fund Portugal further if by the end of the year we are still in this

situation weather is no possibility for the summer in to plug the hole

in its funding needs. Despite his two most senior ministers having

tendered their resignations, the prime Minister continued in office.

He said the lasting Portugal needed a political crisis. He said he had

not accepted the resignation of the Foreign Minister, but there has been

no sign of that resignation being withdrawn. The resignation on Monday

of the Finance Minister shook the government. He cited public

weariness with to make of austerity, missed deficit targets and a lack of

political backing for his policies. The public mood had already turned

sharply against austerity. Last week saw a general strike called by both

the main unions. Now, anti- austerity campaigners have called

for a protest outside the president's Palace.

Bill Blain is strategist at Mint Partners. There is a political

crisis in Portugal. Ali on the edge of a new eurozone crisis? It does

look that way. We have this crisis in Portugal the way that bond

markets had a very steep sell-off. We have other problems in the rest

of Europe. The interesting thing is they all boil down to the same

thing. It is about politics. In Portugal, politicians have realised

it is unsustainable. Initially, we have the ongoing political

uncertainty. The row still things going on in Greece that could result

in them defaulting. The interesting element is that the common

denominator is politics. Many of these countries have been bailed out

or ironic brink of being bailed out. They have some quite weak coalition

governments. So far, all of these economies have tried their hardest,

especially Portugal. Portugal has been successful in making cuts. They

have done what they can. The result has been economic death. All of

these countries are contracting. The Portuguese economy is still going

down. The Spanish economy is flatlining. That is the best

economic performance in Europe. Politicians look and say, I will not

get elected. The creditors always argued that the austerity had to be

pushed through to come pushed through the Canadian side with a

more reform, agile can be. -- pushed through the other side. They had to

restructure to remain competitive. It has taken so long that

politicians and the electorate have lost patience. That is why we'll

have a summer of discontent. Bill will be back to review the papers.

Portugal features in the headlines today. We will discuss it further in

five minutes. All this week we've been looking at

the impact of the recent wild swings in the currency markets. The US and

China have long accused each other of being currency manipulators with

an agenda to boost their own economy at the expense of the other. Here's

our correspondent John Sudworth in Shanghai. It is a decade-long

stand-off. Two of the world 's biggest economies face to face over

the issue of currency cheating. Back in 2003, when $1 bought eight

Chinese renminbi, the US began to complain. Despite the rate falling

to less than six renminbi, the complaints continue. The central

charges that a weaker currency helps China's exporters, like this

hydraulic lift factory, because it makes their goods cheaper to buy.

After ten years of steady exchange rate strengthening, some in China

think enough is enough . This year alone, the renminbi is up 3%. She

says. The US poised to the ever widening trade gap as proof that

China is manipulating its currency. China retorts that it is America

that is now the manipulator, weakening the dollar by keeping

interest rates low and giving US exporters a boost. American

politicians have a point in one sense. China still tightly

controlled its currency. The more interesting question is, why is it

that China is allowing its currency to strengthen, but as far and fast

as some would like, but strengthened none the less. The answer may well

be that the two sides are locked in a mess of a battle. As exports

become more expensive, imports become cheaper, boosting domestic

consumption, which just happens to be China's new number one priority.

One of the ways in the breeze into these salaries by appreciating the

currency. That reduces the cost for the household sector. It increases

the real value of their income and increases their share of the whole

GDP. That reason, renminbi may be allowed to continue, steadily

appreciating. The great US /China currency battle may be over. Oil

prices are staying stubbornly high today following the military coup in

Egypt. Sharanjit Leyl is at our Asia

business hub in Singapore. We would not expect oil to come down just

yet, given the situation in Egypt? You said it. It is a 14 month high.

The crisis in Egypt has exacerbated concerns over oil supply. Prices

have shot through the $101 mark the concerns of possible disruptions to

Middle East supplies. Traders in crudely worried that the volatile

situation could interrupt oil flows through this was canal and the wider

Middle East, which accounts for around 25% of output. The Suez Canal

authority, which operates the waterway, said it had all the

authorities needed for running the canal without being limited by the

laws and the systems of the Egyptian government. Alongside those worries

in Egypt, the world's largest oil consumer saw a huge decline this

week. The availability supplies fell by 10 million barrels. The largest

decline in 30 years. It has exacerbated concerns. Central banks

are meeting in Europe today. The meetings. Neither are expected to