Portugal has become the latest financial domino to fall in Europe. Thursday the government appealed to the European Union for a financial bailout. This follows Greece and Ireland's rescues last year. Portugal has struggled with high debt and rising borrowing costs as its economy has floundered.
For months Portuguese leaders said they could keep their economy afloat. In March Prime Minister Jose Socrates said the other option, turning to outsiders for help, would be a humiliation.
"A bailout from abroad would have profoundly negative consequences for our people, our families and our businesses," Socrates said. All you have to do is look at other countries that have been bailed out, like Ireland and Greece."
But like Ireland and Greece, in the end Portugal couldn't go it alone. Socrates comments came as his government was collapsing around him, literally. Socrates was forced to resign in March after parliament blocked a round of austerity measures meant to keep spending down. Portugal's borrowing costs soared to an unsustainable level. Today the lame-duck Socrates finally capitulated.
"We have reached the moment where the country is at too much risk," Socrates said. "Above all it is the natural interest we must work for."
In Portugal today citizens had mixed reactions to the news. For this man, named Luis, the pending bail out isn't good news at all.
"I'm already affected by it," he said. "I'm one of many workers here in Portugal who thinks it may be the right time to emigrate."
A woman, Isabel Fonseca, said she agreed that the bailout is for the good of all.
"But the Prime Minister should have done this long ago — before the government fell," she said.
Refusing to ask for help
That's a sentiment expressed by many European Union officials and financial professionals. Paulo Casaca is a Portuguese economist; he says Socrates refusal to ask for help — and parliament's refusal to accept the austerity package — has weakened Portugal's position:
"This was a very irresponsible decision, " he said, "because obviously now the conditions will be much more punitive in fiscal terms. I think it's going to be a very complex process, because we have a caretaker government."
Portugal has yet to make a formal request to Brussels for the bailout or say how much it needs. But analysts estimate the rescue package could reach 80 billion dollars. Speaking to Bloomberg News, Credite Agricole's Matul Katesha said the final amount will likely be higher. Because Socrates only has weeks left in power and can't sign a long term deal.
"Any bailout now or any loan may just be a bridging loan ahead of the elections," Katesha said, "at which point we probably see a more significant longer term loan given to Portugal."
Portugal isn't alone in seeing borrowing costs rise. Rates just got higher for all of the 16 countries who use the Euro. Thursday the European Central Bank raised its lending rate a quarter of a point after holding it steady for two years. That pleases Germany, with its robust economy. But for the Euro-zone's struggling peripheral countries it will only make running their governments more costly.
Spain has stressed that it will not need an international bailout — on the heels of Portugal. The Spanish economy minister, Elena Salgado, said the Spanish economy was distinct from Portugal's — larger, more diversified and — she said — more productive. So far most financial watchdogs agree.