Europe promises swift reply to request

PORTUGAL BAILOUT:THE EU Commission last night pledged a swift response to Portugal's request for an EU-IMF bailout after the country's caretaker government conceded it could no longer fight a mounting debt crisis without external aid.

Commission chief José Manuel Barroso, a former prime minister of the country, said the application for a rescue package will be “processed in the swiftest possible manner”.

Portugal’s capitulation, less than a week into a general election campaign, came as it faced soaring borrowing costs, a rush of credit rating downgrades and the refusal of its banks to buy sovereign and state company debt.

Initial talks on a rescue programme will take place when EU finance ministers gather in Budapest tomorrow for a scheduled informal meeting.

Amid growing apprehension in other euro zone countries about the potential for Portugal’s troubles to destabilise other weakened members of the single currency, Lisbon had come under increasing political pressure clarify how it proposed to surmount its problems.

As its bond yields spiked to new records yesterday, the country’s finance ministry pointed to “irreparable” damage last month when parliament rejected the fourth austerity plan in less than 12 months.

After weeks of denial, news of the country's surrender emerged around teatime when finance minister Fernando Teixeira dos Santos told the Jornal de Negociosnewspaper that it could no longer go on.

“The country has been irresponsibly pushed toward a very difficult situation in the financial markets,” he said.

“It is necessary to resort to financing mechanisms available in the European framework in the appropriate terms for the current political situation.”

The looming rescue will be the country’s third. Memories are still raw in the country of two IMF interventions in the 1970s and 1980s.

With Portugal’s centre-right opposition expected to take the spoils in the election, the minority Socialist administration led by José Sócrates had argued that it lacked the constitutional authority to agree a fully fledged rescue programme with the EU and IMF.

However, the country’s position appeared increasingly precarious in recent days as it embarked on expensive short-term bond auctions to put money aside for more than €9 billion in bond redemptions due tomorrow week and in the days after its June 5th election.

Despite Mr Socrates’ repeated denials that any outside help was required, there was concern within the euro zone that the country’s fraught position left it with no option but to apply for aid.

The opposition had backed three previous austerity plans from Mr Socrates but balked at his latest proposal last month, which aimed to cut the public deficit to 4.6 per cent of gross domestic product this year.

While the European Commission said yesterday there had been no talks on any rescue, local media had been speculating for days about possible bilateral aid and bridging finance.

However, Spanish finance minister Elena Salgado ruled out the possibility of her country making a bilateral loan and the word from Berlin was similarly negative. Informed sources insisted Portugal had no option but to apply for a full-blow rescue programme.