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Prime Minister Of Portugal Calls For A Bailout

by Jim ONeil on April 11, 2011

in Personal Finance News

Fellow UK member state Portugal is in quite a pickle. On Wednesday, the country’s Prime Minister announced that a financial bailout is being sought from the European Commission due to skyrocketing debts and trouble raising money within international markets.

Portugal now joins Ireland and Greece in requesting assistance from the International Monetary Fund and European bailout fund.

According to analysts, the country may need as much as euro80 billion to get out of this situation. The bailout request comes as no surprise to many people because the country is one of the smallest and weakest economies in the 17-nation eurozone.

Portugal is struggling to finance its economy in expectation of a forecasted double-dip recession.

Over the past year, investors came to believe that the country would be unable to self-manage its debt load. Market confidence in the financial future Portugal has dwindled.

On Wednesday, its ten-year bond yield rose to 8.78 percent, a record for the euro era. Even the rates for short-term borrowing are higher than what the country is likely to pay for any bailout loans. The five-year bond yield has reached 10 percent.

As Portugal struggled this past year, it continued to insist that it did not want assistance. Like Greece and Ireland, it felt that large loan terms would result in years of being locked into austerity measures. This would further lower the living standard in a country that is already one of the poorest in western Europe.

Few options remain aside from the loans. After new statistics revealed the debt load of the country was worse than estimated, bonds were downgraded to near junk status by rating agencies.

Last month, the government quit following a rejection of its austerity measures by opposition parties. Until the June election, the political status of Portugal is in limbo.

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