Euro countries pressing Portugal to tap bailout fund: report

26th November 2010, Comments 0 comments

The European Central Bank and most eurozone countries are pressuring Portugal to seek aid from the EU's bailout fund, a German newspaper said on Friday, as fears of contagion spread through Europe.

Without citing sources, the Financial Times Deutschland wrote: "The ECB and the majority of euro area countries are pressing Portugal, like Ireland, to apply for help, according to FTD information."

If Portugal were to tap the 500-billion-euro (664-billion-dollar) fund, it would help Spain, only seen as a potential bailout case, the newspaper reported.

"If Portugal were to use the fund, it would be good for Spain because the country has high exposure in Portugal," the FTD quoted a German finance ministry source as saying.

Portugal on Thursday was paralysed by a crippling general strike in protest at a drastic round of spending cuts and tax rises worth some five billion euros which are currently being pushed through parliament.

The measures are intended to reduce the public deficit from 7.3 percent of GDP to 4.6 percent next year in a bid to quell growing international unease over the state of Portugal's finances.

Although Lisbon has denied it needs help, the markets are eyeing the debt-stricken southern European state as its next target after Ireland, said Thomas Mayer, chief economist at Deutsche Bank.

"I fear that the markets are looking at Portugal, which has similar fundamentals to Greece," the analyst told the Frankfurter Allgemeine Zeitung in an interview.

"Market movements are pointing to the expectation that Portugal will take cover under the shield," he said.

Greece was bailed out in May and Ireland was forced to seek help at the weekend after the markets turned against Dublin because of its debt and deficit problems.

© 2010 AFP

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