It is reported that Portugal will come under pressure this week from the European Union and International Monetary Fund to take a bail out sooner rather than later.
The Telegraph article says that Portugal is facing an €80 billion bail-out with both Germany and France ‘anxious’ for Portugal not to risk debt contagion to Spain by leaving the request too late. Although the country is increasing taxes and progressing with a public sector austerity plan the markets are still worried about the level of debt and the possibility of industrial strife.
Portugal is due to raise €1.25 billion on the international debt markets on Wednesday, which may prove to be the litmus test for any bail out request. If this becomes the case then the focus of the markets may well quickly move to Spain, the economy of which is twice the combined size of Portugal, Ireland and Greece.
Just as with Ireland though, the Portuguese government is denying that it either requires help or that there are any meaningful ongoing talks or pressure occurring. Both the President of Portugal, Aníbal Cavaco Silva, and the prime minister, José Sócrates, dismissed these reports. EU and German finance spokespersons have also downplayed any suggestions of a bail out.
Any bail out now may well bring renewed pressure to bear on the EU to increase the already huge €750 billion rescue fund as well as putting in place plans for a system of eurozone bonds, something the Germans have already vetoed.
