I notice that Portugal had a very high interest rate on its national bond issues back in 2012 but since then it has drawn down significantly:
How were they able to decrease the interest rate?
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asked Apr 12, 2016 at 16:26
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$\begingroup$ dw.com/en/portugals-economy-post-bailout/a-18452988 $\endgroup$– 123Apr 13, 2016 at 16:56
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2 Answers
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1.- The government imposed an austerity program and, in exchange, received assistance from the IMF and the EU.
2.- The ECB made it clear that it would do whatever as necessary to save the Euro, even buying sovereign bonds of Euro countries.
3.- A general improvement in financial conditions around 2013 throughout the world let to a decline in default premia.
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Quite simple, though a very bad solution. The ECB creates money out of nothing and uses it to buy government bonds... So by printing money they create 'artificial demand', no one in their right minds would buy Portugal's debt, they will never be able to repay it, their economy (and most of Europe's economies) are dead in the water. When you can print money all you want you have no risk, so you can buy whatever you want... that's why the risk-premia (interest rates) on Portugals debt went down...
