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Germany says Portugal may only tap EU rescue fund

Published on 06/04/2011

Germany said Wednesday that Portugal may only seek help from the European Financial Stability Fund (EFSF) as banks reportedly pressure Lisbon to seek a bridging loan instead to ease its debt woes.

“We created this instrument the EFSF, precisely for this case, for cases like this,” a finance ministry spokesman said. “Portugal, as a member of the eurozone, is entitled to use this instrument.”

“It is Portugal’s sovereign decision to make if it taps this instrument, if it wishes. I think, against the background, that there is no point in wondering what the alternatives are if this instrument, which was specially created for this purpose, has not been considered.”

Portuguese reports said that banks have de,p4ecided to press outgoing premier Jose Socrates’ caretaker government to ask the EU executive for a “bridging loan” of 15 billion euros ($21.4 billion) ahead of June 5 elections.

The reports said that the country’s biggest banks had decided to stop buying Portuguese government bonds even as Lisbon has to raise fresh funds to pay back some nine billion euros of state debt by mid-June.

Pressure has mounted on Portugal after a series of cuts to its and its banks’ credit ratings after parliament rejected last month the government’s latest austerity package, forcing Socrates’s resignation.

Markets increasingly believe Lisbon will be forced to seek outside help, like fellow eurozone strugglers Greece and Ireland last year, and are demanding ever higher rates of return to provide fresh funds to cover its debt.

Portugal’s treasury sold 1.005 billion euros of 6- and 12-month bonds at auction on Wednesday but paid a significantly higher interest rate to do so.

Lisbon insisted Wednesday it would “meet its financial commitments.”