BRUSSELS, Belgium — The Portuguese government threw in the towel today and followed Greece and Ireland in requesting a bailout from the European Union.
Plunging confidence in Portugal's bonds has pushed the country to the brink of bankruptcy.
"I've always viewed a request for external aid as a last resort ... but now if we don't take this decision we will be taking risks that the country can't afford to run," said Prime Minister Jose Socrates in a televised address to the nation.
It was not immediately clear how much Portugal would be asking for to keep its public finances afloat, but previous estimates have suggested a bailout would likely be about 75 billion euros, including a first emergency slice of 15 billion euros.
Greece and Ireland asked for rescue plans totaling 195 billion euros.
EU officials in Brussels have stressed that the EU would be ready to help when Lisbon came forward with a rescue request. "This request will be processed in the swiftest possible manner," said European Commission President Jose Manuel Barroso.
Two dramatic days on the markets forced Socrates to end his long resistance to an international bailout and the demands for stringent austerity measures, which the EU and International Monetary Fund are certain to demand in return.
After ratings agencies cut their assessment of both Portugal and several of the country's banks and industries, the government was forced to pay record rates to raise 1 billion euros in short term loans today while the country's own private banks said they could no longer afford to buy up national debt.
"There was a real threat to the financing of the republic, to our banking system and as a result to the financing of our economy," Socrates said in Lisbon. "I am firmly convinced that if we don't take action the situation will get even worse."
The decision is expected to calm financial markets, which have been concerned that without international help Portugal would be forced to default on its debts.
Portugal's decision to seek an international bailout has seemed inevitable since the country's parliament last month rejected an austerity package designed to contain the country's ballooning budget deficit. Socrates announced the resignation of his Socialist government in response but agreed to stay on in a caretaker role until elections scheduled for June 5. In his caretaker role, Socrates will need support from the opposition to negotiate terms of the bailout.
"The country was pushed in an irresponsible way into a very difficult situation with the financial markets. Faced with this difficult situation, which could have been avoided, I believe it's necessary to turn to the available European financial mechanism, in a way which responds to the current political situation," Finance Minister Fernando Teixeira dos Santos said today.
European officials are hoping that the wave of instability that has swept across peripheral nations of the euro zone will halt with Portugal.
After the runaway debts of Greece and Ireland forced the two countries to seek rescue plans, doubts were raised about the viability of the EU's single currency zone. In response, the EU has set up a "stability fund" of 500 billion euros to support others in trouble.
The concern now is that market attention will turn to Portugal's much larger neighbor Spain. In recent weeks pressure has eased on Spain, with economists recognizing that its finances are in much healthier shape than Portugal's. The Spanish government has a stable majority in parliament to support plans to bring down the deficit.
However, Spain is suffering record unemployment at over 20 percent and many of its savings banks are looking fragile after the bursting of a property bubble.