Money & Company

Tracking the market and economic trends
that shape your finances.

« Previous Post | Money & Company Home | Next Post »

Portugal makes it official: It needs a bailout

April 6, 2011 |  1:30 pm

Debt-hobbled Portugal on Wednesday became the third European nation to request a bailout from the rest of the continent, after investors demanded ever-higher interest rates to fund the troubled country’s bonds.

Socrates “I tried everything but we came to a moment that not taking this decision would bring risks we can’t afford,” Prime Minister Jose Socrates said in a televised statement. “The government decided to make the European Commission a request for financial aid.”

The bailout request had been widely expected, as the country faced skyrocketing borrowing costs over the last month -- reflecting rising investor doubts about the government’s ability to repay its debts.

The yield on two-year Portuguese government bonds soared to 9.14% on Tuesday, the highest in at least 15 years, from 4.69% in early March.

By contrast, the U.S. Treasury pays 0.84% on two-year notes.

Portugal follows Greece and Ireland in seeking financial help from the rest of the 17-member European Union in the aftermath of the 2008-09 financial-system crash and deep recession. The EU last spring devised a program to allow member countries to borrow from a central fund rather than be at the mercy of private bond investors.

But the penalty for doing so is a painful austerity program aimed at slashing spending and reining in debts.

Socrates' attempts to push his own austerity program through the Portuguese parliament failed two weeks ago as legislators balked. Socrates then resigned, though he agreed to stay on as head of a caretaker government until June elections.

-- Tom Petruno

Photo: Portuguese Prime Minister Jose Socrates. Credit: Jose Sena Goula / EPA