Euro nations lean on Portugal to seek help: report

November 26, 2010

Euro nations lean on Portugal to seek help: report
LONDON: Euro zone nations and its central bank are urging Portugal to apply for a financial bailout from a European rescue fund, Financial Times Deutschland reported on Friday.Without revealing its sources, the paper said a majority of euro zone countries and the European Central Bank were putting pressure on Portugal to follow Ireland and Greece and seek aid in order to save Spain — European Union's fifth-largest economy — from having to do the same.The paper quoted a source in Germany's finance ministry as saying: “If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal.”The German Finance Ministry could not immediately be reached for comment on the report which suggested that despite public displays of confidence, euro area leaders were alarmed at the prospect of the debt crisis engulfing ever more of its members.Many analysts believe Portugal will be the next nation to seek assistance from the EU's 750 billion euro rescue fund, and there are fears that Spain might be forced to follow suit.On Thursday, top EU officials sought to assure markets that there was no risk of the euro zone breaking up after investors, stung by Ireland's debt crisis, pushed the borrowing costs of Portugal and Spain to record highs.German Chancellor Angela Merkel, who unsettled markets by her comment this week that the euro was in an “exceptionally serious” situation, said she was confident the euro area would emerge stronger from the crisis.Europe was now showing “more solidarity than a year ago”, she told a conference in Berlin.The chairman of euro zone finance ministers, Jean-Claude Juncker, pitched in saying in a newspaper interview he was not worried about the survival of the euro.And Klaus Regling, chief of the euro's financial safety net, European Financial Stability Facility (EFSF), was even more emphatic when asked by German daily Bild about the risk of the euro area falling apart: “There is zero danger. It is inconceivable that the euro fails.”Some economists and commentators, mostly in Britain and the United States, have suggested the bloc launched in 1999 could split because of high debts and deficits of nations on its periphery and their inability to compete with Germany.But Regling said: “No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically, Europe would only have half the value without the euro.”In another effort to shore up confidence, ECB policymakers on Thursday brushed off the flare-up in debt market turmoil and said the bank's plans to scale back its crisis support remained on track.Greece received a three-year 110-billion-euro EU/IMF bailout in May, leading to the creation of the EFSF, which Ireland has now applied to tap to cope with the enormous cost of bailing out its banks.The Irish government said it was confident it would be able to pass the toughest budget in the country's history next month to meet the terms of an EU/IMF rescue under negotiation.However, Prime Minister Brian Cowen is set for the first backlash from an unprecedented austerity package when results of a by-election the northwestern county of Donegal are due on Friday.Cowen's 15 billion euros ($20 billion) in spending cuts and tax increases unveiled on Wednesday will form the basis for an IMF/EU rescue package worth about 85 billion euros. But the plan failed to impress markets amid doubts the fragile coalition will be able to push it through.German Bundesbank chief Axel Weber, a powerful member of the ECB's policy council, said he was convinced EU leaders would do whatever it takes to repel what he called an “opportunistic attack” on the currency area.He also said the EU has set aside enough money to cover the borrowing needs of the four financially troubled members of the euro zone — Greece, Ireland, Portugal and Spain — and could muster more if needed.”If that is not enough, I am convinced euro zone states will do what is necessary to protect the euro,” Weber told French business and political leaders in Paris.Euro zone policymakers are hoping that Spain and Portugal can stave off an Irish- or Greek-style debt meltdown.A Reuters poll this week showed 34 out of 50 analysts surveyed believe Portugal will be forced to ask for help. In a separate survey only four out of 50 economists thought Spain would seek aid. (Additional reporting by Paul Carrel in Berlin, Padraic Halpin in Donegal, Carmel Crimmins in Dublin. AGENCIES

 
 
 

Euro nations lean on Portugal to seek help: report

November 25, 2010