Portugal raises 2014 budget deficit as Novo Banco takes toll on finances
Portugal is revising its 2014 budget deficit from 4.5% of gross domestic product to 7.5%, so as to take into account its capitalisation of Novo Banco. As we noted earlier this month, Portugal cancelled a multi-billion-euro auction of Novo Banco, a "good bank" carved out of the ruins of Banco Espirito Santo, after offers from US and Chinese bidders were deemed too low. The collapse of the auction resulted in the €4.9bn that was injected into Novo Banco in August having to be added to Portugal's 2014 budget deficit. This is a damaging blow to the Portugal's government just weeks before a general election.

LISBON, Portugal (AP) — Portugal's statistics agency has revised sharply upward the country's 2014 budget deficit, from 4.5 percent to 7.2 percent, after the Treasury failed to recoup a loan it made to a bank.

The government placed 4.9 billion euros ($5.5 billion) in a bank resolution fund — a mechanism adopted during the eurozone debt crisis to support the financial sector — that kept Novo Banco afloat. Novo Banco was the so-called good bank salvaged from last year's collapse of major lender Banco Espirito Santo.

The Bank of Portugal announced this month it had failed to find a buyer for Novo Banco willing to pay the sale price, which aimed to cover public liabilities.

Political Cartoons View All 1024 Images

The National Statistics Agency added the Treasury outlay to the deficit Wednesday.