Portugal thinks ‘high risk’ Ireland will need bailout

PORTUGAL’S Finance Minister has said “the risk is high” Ireland will have to ask for an international rescue, and said the Irish Government must take into account what is best for the eurozone as well as the country when it decides whether to seek financial help from the European Union and International Monetary Fund.

“Portugal has been able to guarantee financing in the market,” Fernando Teixeira dos Santos said in the interview. “There has been demand for Portuguese debt. We are in a situation where we have mechanisms to continue to finance ourselves in the markets and face this situation.”

“Portugal’s situation is much different from Ireland’s,” he said. “Ireland is facing problems with its financial system that Portugal doesn’t have.”

Portuguese newspaper Jornal de Negocios reported that Dos Santos says the country has made no aid request to the EU.

Dos Santos also said spreads on Portuguese government bonds should continue to fall in response to a statement last Friday that made it clear existing bond issues won’t be restructured as part of the eurozone’s response to future fiscal crises.

He also said he is confident the government will meet its fiscal targets for 2010 and 2011, and that the opposition party in the country is equally committed to hitting the targets.

The government has said it will lower its ratio of its budget deficit to gross domestic product to 7.3% in 2010 and 4.6% in 2011, from 9.3% in 2009.

Teixeira dos Santos said there has been a “contagion” effect for Portugal arising from concerns about Ireland’s ability to repay its debts.

“I would not want to lecture the Irish government on that,” Teixeira dos Santos said. “I want to believe they will decide to do what is most appropriate together for Ireland and the euro. I want to believe they have the vision to take the right decision.”

And Ireland was also prodded by European Central Bank council member Miguel Angel Fernandez Ordonez to make a “final decision” on its fiscal crisis to calm markets as finance ministers prepare to discuss an aid plan.

“The situation in the markets in recent weeks has been very negative due in some way to the lack of a final decision by Ireland,” Ordonez told reporters in Madrid.

“It’s not me who should take a decision about Ireland, it’s Ireland that should take the right decision at the right moment.”

“We expect an appropriate reaction by the Irish authorities – as well as the clarification by the ministers ... (will) help to calm markets,” Bank of Spain governor Miguel Angel Fernandez Ordonez said.

The comments by Spain’s central bank governor underscore pressure on Ireland to accept a bailout and help reverse a bond sell-off among the euro-region’s deficit-laden nations. Germany had pressed for Ireland to take aid before yesterday’s ministers’ meeting in Brussels, according to a German government official.

Bonds in Ireland, Portugal and Greece have plummeted since EU leaders agreed on October 29 to draft a permanent crisis mechanism to replace the euro-rescue fund set up in May once its mandate expires in 2013.

That prompted European finance chiefs to issue a statement at a Group of 20 summit in Seoul last week saying the plan being debated to have investors cover future bailout costs would have “no impact” on existing debt.

Yields on bonds of Spain and Portugal also jumped amid concern that fallout from Ireland would spread.