Portugal Resorts to Asking EU for Bailout AidBulgaria in EU | April 6, 2011, Wednesday // 18:53| views
Portuguese Prime Minister Jose Socrates addresses the nation, from Sao Bento Palace in Lisbon, late 06 April 2011. EPA/BGNES
Portugal has followed Greece and Ireland in requesting a bailout aid from the EU under the European Financial Stability Facility over its troubled state finance.
"I've always viewed a request for external aid as a last resort ... but now if we don't take this decision we will be taking risks that the country can't afford to run," said Portugal's Prime Minister Jose Socrates in a televised address to the nation.
"There was a real threat to the financing of the republic, to our banking system and as a result to the financing of our economy. I am firmly convinced that if we don't take action the situation will get even worse," he added.
Plunging confidence in Portugal's bonds has pushed the country to the brink of bankruptcy.
It was not immediately clear how much Portugal would be asking for to keep its public finances afloat, but previous estimates have suggested a bailout would likely be about EUR 75 B, including a first emergency loan of EUR 15 B.
Under the European Financial Stability Facility (EFSF) set up in May 2010 (to be replaced by the European Stability Mechanism (ESM)) over the Greek crisis, Greece and Ireland are already on rescue packages totaling EUR 195 M.
"This request will be processed in the swiftest possible manner," said European Commission President Jose Manuel Barroso regarding Portugal's seeking of EU aid.
Two dramatic days on the markets forced Socrates to end his long resistance to an international bailout and the demands for stringent austerity measures, which the EU and International Monetary Fund are certain to demand in return.
After ratings agencies cut their assessment of both Portugal and several of the country's banks and industries, the government was forced to pay record rates to raise 1 billion euros in short term loans Wednesday while the country's own private banks said they could no longer afford to buy up national debt.
The decision is expected to calm financial markets, which have been concerned that without international help Portugal would be forced to default on its debts.
Portugal's decision to seek an international bailout has seemed inevitable since the country's parliament last month rejected an austerity package designed to contain the country's ballooning budget deficit. Socrates announced the resignation of his Socialist government in response but agreed to stay on in a caretaker role until elections scheduled for June 5. In his caretaker role, Socrates will need support from the opposition to negotiate terms of the bailout.
European officials are hoping that the wave of instability that has swept across peripheral nations of the euro zone will halt with Portugal.
After the runaway debts of Greece and Ireland forced the two countries to seek rescue plans, doubts were raised about the viability of the EU's single currency zone. In response, the EU has set up a "stability fund" of EUR 500 B to support others in trouble.
However, there are rising concerns that market attention will turn to Portugal's much larger neighbor Spain. In recent weeks pressure has eased on Spain, with economists recognizing that its finances are in much healthier shape than Portugal's. The Spanish government has a stable majority in parliament to support plans to bring down the deficit. Yet, Spain is suffering record unemployment at over 20%.
The International Monetary Fund has said in a communiqu? that it was ready to provide financial assistance to Portugal even though it has not received a former request from the Portuguese government yet.
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