LISBON (MNI) – Portugal’s outgoing Prime Minister Jose Socrates
announced Wednesday night that his caretaker government has decided to
request external aid from the European Union’s bailout fund.
In a dramatic television appearance, Socrates — who submitted his
resignation two weeks ago – dropped months of steadfast resistance to
outside help, saying that Portugal would finally agree to negotiate an
aid package out of “national interest” and that the country’s rapidly
deteriorating financial situation “would have been aggravated if we had
nothing.”
“The government has decided to direct a request for financial aid
to the European Commission so that Portugal can guarantee its
financing,” said Socrates, who spoke from his official residence in the
Sao Bento section of Lisbon.
Socrates conceded that asking for aid was always a last resort for
his government. He noted that the ratings on Portugal’s sovereign debt
and on the corporate debt of its banks and companies had plunged in
recent weeks to levels never seen before.
And, in a jab at the opposition parties that forced the collapse of
his government, he said that the rejection by parliament of new
austerity measures he had proposed “dramatically aggravated the
financial situation of the country.” It had been the worst possible
signal for financial markets, he said.
Financial markets have been punishing Portugal severely in recent
weeks, pushing rates on 5-year paper to a staggering 10% and on 10-year
bonds to nearly 9%. Those rates are well above what the government had
said was sustainable.
Earlier Wednesday, Portugal sold E1 billion worth of six-month and
one-year treasury bills, paying 5.11% and 5.9% respectively — up
sharply from under 3% for the six-month paper and 4.3% for the 1-year
paper in previous auctions.
Next week, Lisbon faces redemptions and coupon payments totaling
more than E5 billion, which it is expected to be able to make. However,
another E6.954 billion due in mid-June has financial markets — and
apparently the government in Lisbon — much more worried.
At least for this evening, Socrates and the leader of the main
opposition party, Pedro Passos Coelho, showed a unity of purpose.
Speaking immediately after Socrates, Coelho — who heads the Social
Democratic Party (PSD) — quickly endorsed the request for aid. His
backing for the decision is important since he’s expected to win the
June 5 election and will thus be in the position of negotiating an aid
package or at least implementing it once it’s been agreed.
“The PSD will fully support this request for help,” Coelho said.
“We couldn’t leave the country in a desperate situation,” he added,
noting that the aim of the request for aid was to guarantee security for
Portuguese banks and the whole country.
“This request for aid will help the Portuguese people experience
less uncertainty over their future,” he said. “The most important thing
in the coming months is to calm the Portuguese people.”
He concluded by saying that for now his party will wait to see how
the government conducts the negotiations. “I want to re-confirm that the
request for help should not be seen by Portuguese people as a desperate
act,” Coelho said.
Eurozone officials have fretted for months that, after Ireland and
Greece, an escalation of trouble in Portugal could lead to another
outburst of the EMU sovereign debt crisis. Of particular concern was the
possibility of contagion to neighboring Spain, which is a much bigger
kettle of fish and has major bank problems of its own.
The European Commission, the ECB and numerous member states of the
euro area had been quietly pushing Portugal for months to accept an aid
package from the European Financial Stability Facility (EFSF), which
would be accompanied by loans from the International Monetary Fund, as
is the case with the Greece and Ireland packages.
“This is a responsible step for the securing financial stability in
the euro area,” Olli Rehn, Europe’s Commissioner for Economic and
Monetary Affairs told reporters in Brussels.
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