Download Eurozone debt crisis: Portugal admits `it could need EU

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Eurozone debt crisis: Portugal admits 'it
could need EU bail-out'
Portugal has admitted that it could become the latest
European Union country to seek a bail-out as the
eurozone debt crisis deepened.
Fernando Teixeira dos Santos warned that the fall out from concerns over Ireland's public
finances could spread to its neighbours Photo: AFP/GETTY
By Andrew Hough, Bruno Waterfield in Brussels, Robert Winnett and Heidi Blake 4:45PM
GMT 15 Nov 2010
Comments
Fernando Teixeira dos Santos, the Portuguese Finance Minister, has warned
that the fall out from concerns over Ireland's public finances could create a
contagion effect among its neighbours.
"The risk is high because we are not facing only a national or country
problem," he told Dow Jones news wires, in reference to the possibility that
Lisbon will need international financial assistance.
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“It is the problems of Greece, Portugal and Ireland. This is not a problem of
only this country. This has to do with the euro zone and the stability of the
eurozone, and that is why contagion in this framework is more likely.
“It is not because markets consider we have similar situations. They are only
similar in what concerns markets, but as I said they are very different.”
He added: “Markets look at these economies together because we are all in this
together in the euro zone, but probably they could look different if we were not
in the euro zone.
“Suppose we were not in the eurozone, the risk of the contagion could be
lower.”
The Portuguese minister insisted that Portugal was improving its finances as it
struggled with burgeoning public debt and deficit levels and later tried to back
away from suggestions Lisbon was poised to call for help.
"Such a request is not imminent, there are no contacts, be it formal or
informal," he said. "The rest are rumours and speculation."
His words may have been an attempt to encourage Ireland's leaders to calm
markets by dropping their own reluctance to take up a life-line from Brussels.
The governor of the Bank of Spain also urged Dublin to act quickly by saying
its indecision had increased jitters on financial markets.
Miguel Angel Fernandez Ordonez, a member of the ECB's governing council,
told a banking conference in Madrid he expected an "appropriate reaction" by
Ireland to help calm markets.
He later added: "The situation in the markets has been negative due in some
part to the lack of a decision by Ireland. It's not up to me to make a decision on
Ireland, it's Ireland that should take the decision at the right moment."
Spain is one of several countries on the euro zone's periphery which has debt
problems and has seen its borrowing costs spiral as investor confidence
weakens.
Greece, meanwhile, also admitted on Monday that it would breach conditions
for a new installment of the 110 billion-euro (£93 billion) bailout as Greek
public deficit and debt figures for the past four years were revised up sharply.
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George Papandreou, the Greek Prime Minister, blamed Germany for the crisis.
He said Berlin's demand that banks and bond markets share the pain of a
sovereign debt default could push some euro zone economies towards
bankruptcy.
"It created a spiral of higher interest rates for countries that seemed to be in a
difficult position, such as Ireland or Portugal," he said during a visit to Paris.
"This could create a self-fulfilling prophecy ... This could break backs. This
could force economies towards bankruptcy."
Earlier Ireland's justice minister refused to rule out the possibility of a bailout for the beleaguered economy from Brussels that was considering the
possibility of a £77 billion rescue package.
Things are happening day by day," Dermot Ahern, told RTE television when
asked whether he would promise that Dublin would not apply for financial
assistance.
While the Irish government denied it would need a bailout a senior member of
the European Central Bank confirmed discussions were under way with Dublin
and said that aid, if requested, would be available for Ireland's banks or for the
state itself.
Irish officials were said to be considering pumping more cash into the
country’s banks to push their capital above regulatory targets set in March in a
bid to allay concern about rising loan losses.
EU sources confirmed to the Daily Telegraph that talks between the two sides
about a rescue package had continued through the weekend.
But Mr Ahern denied the existence of any discussions despite other officials
confirming the Irish government was in talks with "international colleagues" on
its budget woes.
"There are no negotiations going on. If there were, the government would be
aware of it, and we are not aware of it," he said, adding that he had spoken to
Prime Minister Brian Cowen on Sunday and to Finance Minister Brian
Lenihan.
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Investors have rushed to sell Irish debts in recent weeks and there is growing
speculation that if Europe fails to intervene there may be a run on other
countries, including Spain and Portugal.
Vitor Constancio, the European Central Bank Vice President, confirmed
Ireland had been talking to European institutions but there had not yet been a
formal request for assistance.
"The Irish state is financed until part of next year, but it is also a problem of the
banks that are at the centre of the problems in Ireland and considerations have
to be pondered," he told reporters in Vienna.
He said such help, if needed, could involve the 440 billion euro European
Financial Stability Facility (EFSF) set up after Greece was forced to seek help
in May.
The EU rescue package, seen as “very likely” by European officials, could cost
the British taxpayers as much as £7billion following a deal agreed by Alistair
Darling when he was still chancellor in the political limbo following the
general election in May. Under its terms, Britain agreed to underwrite EU
plans to rescue countries in difficulty.
David Cameron has publicly expressed support for steps to assist Ireland.
Several British banks, particularly RBS, have exposure to Irish government
debt amounting to billions of pounds and have watched their shares fall over
the past week.
Germany has been pressing Ireland to accept an EU-led financial rescue in
order to calm international investors and to protect the euro-zone from a new
debt crisis.
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