Portugal to seek European bailout

After insisting defiantly that Portugal did not need external help in dealing with its soaring borrowing costs, Finance Minister Fernando Teixeira dos Santos on Wednesday bowed to the inevitable and accepted that the country would need to tap the European emergency fund to resolve its debt crisis.

"I understand that it is necessary to resort to the funding mechanisms available within the European framework," Teixeira said in a written response to questions by local daily Jornal de Negocios, which were posted on its website late Wednesday.

The government's cave-in to market forces followed an auction of short-term debt on Wednesday in which the rates that investors demanded for holding Portuguese debt shot up to clearly unsustainable levels.

"The country was irresponsibly pushed into a very difficult situation in the financial markets," Teixeira dos Santos said.

The minister called for the support of the country's main political parties and institutions in seeking aid.

Portugal's already difficult situation was exacerbated last month by parliament's rejection of the government's latest batch of deficit-reduction measures, contained in the Stability and Growth Program (SGP) it sent to the European Commission. That sparked the resignation of Prime Minister José Sócrates leading President Aníbal Cavaco Silva to call general elections for June 5.

Earlier Wednesday, the debt-management agency IGCP sold just over 1 billion euros in six- and 12-month Treasury bills, with the yield on the shorter-dated paper climbing to 5.117 percent from 2.984 percent at an auction held on March 2. The one-year paper was issued at a rate of 5.902 percent, up from 4.331 percent last month. The yield on the Portuguese five-year bond also remained above 10 percent and reached 8 percent for one-year paper.

"[Wednesday's] tender clearly showed the deterioration in market conditions after the rejection of the SGP," Teixeira dos Santos said. "External debt is quite low, and the yields reflected the unprecedented deterioration seen over the past few weeks as a result of the increase in uncertainty hanging over the country."

But Teixeira hastened to add that Portugal would continue to honor its debts. "Despite the very patent and serious consequences resulting from the political crisis opened up by the rejection of the SPG, Portugal will honor the financial commitments it has undertaken."

At press time, Sócrates was due to make a statement to the public.

The European Commission indicated it would wait for an official announcement from the government on its intention to tap the European Financial Stability Facility (EFSF) before reacting.

Prior to Teixeira dos Santos' announcement on Wednesday, the head of the Eurogroup, Luxembourg Prime Minister Jean-Claude Juncker, said Wednesday the situation of Portugal as well as Ireland and Greece will be discussed at an informal meeting of euro-zone finance ministers, to be held next Friday.

Pressure had also built up on the government to seek assistance from the country's bankers. Ricardo Salgado, the chief executive officer of Portuguese lender Banco Espírito Santo, said in an interview late Tuesday with the TVI television channel that Portugal needed to ask the EU for a loan "urgently." Salgado said the loan could be as much as 15 billion euros, adding that the opposition parties should back the government on this.