Portugal issues "high-risk" warning of need for bailout

With Ireland under mounting pressure to seek outside help to deal with its debt crisis, Portugal on Monday said there was a "high risk" it too may have to ask for an international rescue.

At the same time, Spanish officials sought to distance their country from the problems facing other so-called peripheral euro-zone countries and denied Madrid was putting pressure on Ireland to accept a bailout from the European Financial Stability Facility (EFSF) set up by the EU in the wake of the Greek debt crisis earlier this year.

In comments to the Financial Times posted on the newspaper's website, Portuguese Finance Minister Fernando Teixeira dos Santos said Portugal also faces having to go cap in hand to the EFSF because of contagion in the sovereign-debt markets. Ireland's risk premium hit record highs last week on fears of a debt default, punishing bond yields in Greece and Portugal, and, to a lesser extent, Spain.

"The risk [of Portugal needing a bailout] is high because we are not facing only a national or country problem. It is the problems of Greece, Portugal and Ireland. This is not a problem of only this country," Teixeira dos Santos told the FT.

But in subsequent remarks Teixeira dos Santos made it clear the government has no plans to seek external help and would continue to finance itself in the markets. "There's a big difference between saying there is a risk of contagion and saying help is imminent or that we are going to ask for help," Bloomberg quoted the minister as saying.

He complained about the financial markets lumping countries in the euro zone with different problems.

Texiera dos Santos also lamented the uncertainty generated in the markets by plans to introduce a permanent rescue mechanism to replace the EFSF, with talks with private investors having to bear some of the pain of any debt restructuring.

Portugal is looking to reduce its budget deficit from 9.3 percent of GDP to 4.6 percent next year through an austere state budget for 2011. Ireland by contrast faces a shortfall on its finances of 32 percent of GDP.

"Our budget proposals were positively received by the markets, then things were reversed because of the uncertainty around the permanent mechanism for dealing with bail-outs," Teixeira dos Santos said. "We were like the soccer player running to the goal and ready to kick for the goal, and then someone fouls us [...] but this time there was no penalty."

Economy Minister Elena Salgado on Monday said "in no way" was "Spain putting pressure" on Ireland to accept help from the EU, but went onto to argue that it is Ireland's "job to help find a solution to European problems."

The governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, said it was not up to him to take decisions for Ireland, but added: "Ireland needs to make the right decision at the right time."

The central bank chief said it was "evident" that the markets had reacted "very negatively" to the situation in Ireland, but also agreed with Teixeira dos Santos that uncertainty over the shape of the replacement for the EFSF had also spooked the markets.

In a statement issued during the G20 summit last week, the finance ministers of Germany, France, Italy, Spain and Britain said: "Any new mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements."

The Spanish secretary of state for the economy, José Manuel Campa, insisted the Greek, Irish and Spanish economies were facing different economic situations. Spain "was not Greece, nor is it Ireland, nor will it ever be."

The official said Spain's risk premium, which hit record highs last week of over 220 basis points, was well below that of Ireland of some 540 basis points.

Campa said no further austerity measures were needed for Spain to meet its target of reducing its budget deficit from 11.2 percent of GDP last year to 6 percent next year, before bringing it back within the European Union limit of 3 percent in 2013. "The budget plan is consistent with the prospects for growth and with meeting the deficit target," the official said.