MercoPress. South Atlantic News Agency

Portugal admits the facts, formally requests a bailout from the EU

Prime Minister Jose Sócrates in his televised statement

Portugal's caretaker government said on Wednesday it had decided to seek financing from the European Union in an abrupt turnaround after resisting a bailout for months despite sharply deteriorating financial conditions.

The nation of 10.5 million became the third member of the Euro zone to seek a rescue after Greece and Ireland after months of fending off-market pressure to request assistance, as borrowing costs soared amid deepening political instability.

Prime Minister Jose Sócrates said in a televised statement that parliament's rejection of additional austerity measures last month had aggravated the financial situation, ultimately making the request for aid “inevitable.”

“I tried everything, but in conscience we have reached a moment when not taking this decision would imply risks that the country should not take,” he said.

Portugal's position worsened last month when his minority Socialist government resigned after the parliamentary defeat, casting the country into political limbo. An early general election is set for June 5.

Bond yields spiked, ratings agencies downgraded sovereign and bank debt, and local banks warned this week they may no longer be able to buy government paper.

“In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework,” Finance Minister Fernando Teixeira dos Santos said.

Euro zone officials say Lisbon is likely to need between 60 and 80 billion Euros in European and International Monetary Fund loans over three years, but any assistance will be subject to strict conditionality.

The European Commission's top economic official, Olli Rehn, welcomed the Portuguese decision, saying it was in the interest of the 17-nation single currency area as a whole.

“This is a responsible move by the Portuguese government for the sake of economic stability in the country and in Europe,” Rehn told reporters.