Portugal decides to seek EU bailout

PORTUGAL’S caretaker government said it had decided to seek financing from the European Union in an abrupt turnaround after resisting a bailout for months despite sharply deteriorating financial conditions.

The nation of 10.5 million became the third member of the eurozone to seek a rescue after Greece and Ireland.

Prime Minister Jose Socrates said parliament’s rejection of additional austerity measures last month had aggravated the financial situation, ultimately making the request for aid “inevitable”.

“I tried everything, but in conscience we have reached a moment when not taking this decision would imply risks that the country should not take,” he said.

Portugal’s position worsened last month when his minority Socialist government resigned after the parliamentary defeat, casting the country into political limbo. An early general election is set for June 5.

Bond yields spiked, ratings agencies downgraded sovereign and bank debt, and local banks warned this week they may no longer be able to buy government paper.

“In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework,” Finance Minister Fernando Teixeira dos Santos said.

Eurozone officials say Lisbon is likely to need between €60 billion and €80bn in EU and IMF loans over three years.

The European Commission’s top economic official, Olli Rehn, welcomed the Portuguese decision, saying it was in the interest of the 17-nation single currency area as a whole: “This is a responsible move by the Portuguese government for the sake of economic stability in the country and in Europe.”

EU officials have been striving to prevent financial market contagion spreading beyond Portugal to larger economies such as Spain.

In a moment of farce, Mr Socrates began to make a TV statement at 7pm but his appearance was aborted seconds later due to a technical hitch, resuming 40 minutes later.

His government has implemented a series of spending cuts, tax rises and wage curbs and proposed further measures aimed at reducing the public deficit to 4.6% of gross domestic product this year after missing last year’s 7.3% target.

Following a restatement of public accounts, the 2010 deficit came in at 8.6%.