Spain Says It Will Not Join Portugal in Following Greece and Ireland in Asking for IMF Bailout But It Will Continue to Enforce Austerity Measures Against the People

EU Says Portugal Needs About $114 Billion in Aid

Portugal announced it is following Greece and Ireland in asking for outside financial help to deal with its debts. Stocks in Portuguese banks are surging on the Lisbon stock exchange a day after the debt-stressed country said it would ask for a bailout. Portugal's yearlong debt crisis has hurt the banks, which have relied heavily on getting liquidity from the European Central Bank. The government's announcement late Wednesday that it will ask for a bailout came after bankers warned they could no longer buy Portuguese debt. Portugal is following Greece and Ireland, other financially troubled eurozone countries, in asking for aid from Europe's bailout reserve and the International Monetary Fund. - Portugal: No Date Date Yet for Formal Bailout Request, Associated Press, April 7, 2011

April 8, 2011

AP – Europe's top financial officials said Friday that debt-ridden Portugal will need around euro80 billion ($114 billion) in rescue loans and that negotiations over a full, multiyear bailout program will begin immediately.

A final deal should be in place by mid-May, allowing the debt-ridden country to meet huge bond repayments in June, the EU's Monetary Affairs Commissioner Olli Rehn said.

Rehn said the euro80 billion loan was based on "very, very preliminary estimates" and that nailing down a final amount will require several "weeks of empirical work."

Portugal this week became the third country in the eurozone to request international help, after last year's multibillion rescue packages for Greece and Ireland from the European Union and the International Monetary Fund.

While a rescue of Portugal had long been anticipated and its cash needs can easily be met by Europe's existing financial backstops, the country's political situation — where a caretaker government is in charge until elections in early June — makes reaching a final deal more difficult.

Prime Minister Jose Socrates resigned late last month after opposition parties rejected unpopular spending cuts and tax increases that the government said were necessary to get the country's struggling economy back on track.

EU finance ministers, who are in Hungary for a two-day meeting, said Friday that the economic adjustment program that accompanies the rescue loans will have to go beyond the measures rejected by the opposition, heralding difficult negotiations ahead.

Rehn said it's "essential" that a cross-party agreement is reached in Portugal and added that experts from the European Commission, the EU's executive, the European Central Bank and IMF will travel to Lisbon soon to take a close look at the country's books.

Any program will be based on strict conditions to ensure that Portugal will eventually be strong enough to repay its creditors and will most likely last for three years, Rehn said.

It will require not only cuts in government spending, but also reform measures designed to make Portugal's economy more competitive, Jean Claude Juncker, the prime minister of Luxembourg and the main spokesman for the euro countries, said.

On top of that, the loans will most likely include a "specific allocation" to shore up Portugal's banks, Rehn said. Portugal's banks have lent heavily to households and businesses and have relied on ECB emergency funding for months.

Rehn added that Lisbon will also have to sign up to an "ambitious privatization program" to help it meet its funding needs.

European officials hope that aid for Portugal will finally draw a line under the debt crisis that has crippled the continent for more than a year.

"The predominant view in markets is that this step ring-fences the three weaker economies of the euro area and therefore helps to avoid wider contagion," said Klaus Regling, who manages the European Financial Stability Facility, the eurozone's main bailout fund.

He said larger countries like Spain won't be drawn into the crisis, because financial markets now have a much better understanding of "the economic fundamentals in the different member states of the euro area."

"The risk of contagion is much less than six or nine months ago," Regling added.

Once a program for Portugal is in place, the EFSF, which issues bonds to finance rescue loans, should be able to act within about ten days, Regling said.

Although the bailout request from Portugal has taken some pressure off other struggling eurozone economies like Spain and Italy, Friday's news conference also pointed to the challenges ahead.

Portugal's government was not the first in the eurozone to collapse amid anger over austerity measures, and doubts are growing over how much longer citizens in debt-ridden countries will accept painful cuts and radical overhauls of traditional privileges, such as early retirement ages and protected professions.

Greece, which almost a year after being rescued is still wallowing in recession, received a warning Friday not to fall behind in implementing the reforms that form part of its program.

"We reminded the Greek authorities that it is important to stick to the targets for public deficit in the next few years," Juncker told journalists.

There are concerns that some of the reforms passing through Greece's parliament are not being implemented in practice, while government revenue remains below expectations because of the recession and widespread tax evasion.

Analysts warn that a loss of political will to stick to harsh adjustment programs may still lead one or more of the eurozone's weakest members to default on some of their debts, which in turn would trigger problems for banks in larger states and could ring in a new round of the crisis.

Spain Market Pressure Eases Despite Portugal Woes

April 7, 2011

AP – Spain's Finance Minister Elena Salgado said the nation would not end up joining its neighbor Portugal in requesting a bailout — and investors appeared to agree, as market pressure eased on the debt-heavy country.

Investors accepted lower interest rates in an auction of three-year bonds that was seen as a first test after Portugal said Wednesday it would seek an international rescue package.

The Spanish Treasury said it sold euro4.13 billion ($5.9 billion) at an average interest rate of 3.57 percent, down slightly from 3.59 percent in the last such auction Mar. 3.

Salgado told the Cadena Ser radio station that outside help for the eurozone's fourth largest economy "is absolutely ruled out" because the Spanish economy "is more diversified, more powerful with sound basics, and is much more competitive" than Portugal's.

Portugal's bailout request also appeared to have little impact on Spain's other borrowing rates in the secondary market. In midmorning trading, the yield on Spain's 10-year bonds was at 5.25 percent, up marginally from 5.21 percent on Wednesday. The spread, or difference, with Germany's equivalent rate actually eased somewhat, indicating investors are less worried about the country's finances.

"The coming weeks and months will be key in determining whether the market views Spain to be in the clear," said Jane Foley, an analyst at Rabobank International.

Few economists think Spain is in line to become the fourth member of the eurozone's bailout club anytime soon following a raft of austerity measures which have included tax increases, public sector wage cuts and the raising of the retirement age from 65 to 67.

Dan Seiver, a finance professor at San Diego State University, said there is now a much lower risk that speculators will target other nations in the eurozone, because the weakest countries have received — or are about to receive — bailouts.

Nevertheless, Spain faces extremely difficult times in the years ahead. Unemployment stands at 20 percent with grim growth prospects. Thousands of young Spaniards were expected to demonstrate Thursday night against the austerity measures.

Spain's central bank says the economy will grow this year by just 0.8 percent after two years of recession, though the government of Prime Minister Jose Luis Rodriguez Zapatero has rosier forecasts for 1.3 percent growth.

The government on Wednesday lowered growth estimates for 2012 from 2.5 percent to 2.3 percent, and from 2.7 percent to 2.4 percent for 2013.