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Cash-strapped Portugal concedes it needs EU bailout
Joins Greece, Ireland in asking for aid to keep economy afloat
Question of the Day
“I believe it is necessary to resort to the financing mechanisms available in Europe,” Fernando Teixeira dos Santos said in written comments to the daily Jornal de Negocios.
Portugal would become the third financially troubled eurozone country, after Greece and Ireland, to accept assistance from Europe’s bailout fund and the International Monetary Fund. Analysts expect Portugal will need up to $114.4 billion.
The move had long been expected as Portugal, one of the 17-nation eurozone’s smallest and weakest economies, struggled to finance its economy ahead of what is forecast to be a double-dip recession this year.
Market confidence in Portugal’s financial future has evaporated over the past year as investors bet that the country will not be able to manage its debt load on its own. The yield on its 10-year bond, for example, rose to a euro-era record of 8.78 percent Wednesday.
Even Portugal’s short-term borrowing rates are much higher than what it likely would have to pay for bailout loans as the yield on five-year bonds is now 10 percent.
By contrast, Irish average interest rates - currently under review for a decrease - are 5.8 percent for loans with longer maturities.
Over the past year, Portugal has insisted that it doesn’t want assistance because the terms of a big loan would lock it into austerity measures for years, lowering the standard of living in what is already one of Western Europe’s poorest countries. Athens and Dublin were reluctant to accept help for the same reasons.
But authorities have been cornered by the crisis. Rating agencies have downgraded Portuguese bonds to near junk status in recent weeks as new figures showed its debt load is worse than initially thought.
Added to that, the government quit last month after opposition parties rejected its austerity measures, and the country is in a political limbo until a June election, making it uncertain who might ask for help.
Investors, including the country’s main banks, are balking at providing funds to Portugal out of fear that it may not be able to settle its debts. As financing dries up, companies could have problems finding money to pay wages. The unemployment rate last year reached a record 11.2 percent.
Portugal’s bankers had urged the caretaker government to ask at least for a bridge loan of at least $14.3 billion to see it through the election.
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