Portugal Seeks EU Bailout

Portugal has asked the European Union for a bailout after a domestic political crisis helped push borrowing costs to record levels, making it the third euro region country to seek a rescue. Socrates, who is presiding over a caretaker government with limited powers until June 5 elections, didn’t give details on the kind of package that Portugal needs. Portuguese bond yields have surged since Socrates offered to resign on March 23 following a parliamentary rejection of proposed budget cuts. His government has insisted for the past year that the country didn’t need help to meet its commitments and has engaged in the deepest spending squeeze in three decades to narrow the nation's deficit. That didn’t stop the yield on Portugal’s 10-year government bond rising to a euro-era high of 8.804 percent today. Portuguese government bonds due March 2012 were sold today at an average yield of 5.902 percent. That’s more than Germany pays for 30-year bonds. The premium that investors demand to hold Portuguese debt over German bunds reached a euro-era record of 544 basis points yesterday. Swift Processing “The President of the European Commission assured that this request will be processed in the swiftest possible manner, according to the rules applicable,” the European Commission said in a statement. “They’ve been able to raise a bit of money, but it’s still at rates that are clearly unsustainable,” Goldman Sachs Group Inc. Chief European Economist Erik Nielsen said in an interview from London on Bloomberg Television’s “Surveillance Midday” with Tom Keene today. Portugal is the latest country to seek an EU-led bailout after Greece sparked a sovereign debt crisis that threatened to splinter the euro region a year ago and engulfed Ireland in November. The International Monetary Fund contributed to both. Portugal has been trying to avoid requesting aid for the first time since 1983, when it received external help from the Washington-based IMF. Its credit rating was nevertheless cut by Moody’s Investors Service for the second time in three weeks yesterday, taking it to Baa1. That’s the same level as Ireland, Russia, Mexico and Thailand. Portugal has struggled to convince investors it can avoid a bailout partly because its economy has barely grown in the past decade. It has expanded at an average annual rate of less than 1 percent in the period, ranking among Europe’s weakest growth rates. Unemployment rose to 11.1 percent in the fourth quarter, the highest since at least 1998, as the economy contracted for the first time in a year. Portugal reported a budget deficit last week equal to 8.6 percent of the 2010 gross domestic product, higher than the 7.3 percent the government had previously forecast.