Eurozone nations and their central bank are urging Portugal to apply for a financial bailout from a European rescue fund, Financial Times Deutschland reported yesterday.
Without revealing its sources, the paper said a majority of eurozone countries and the European Central Bank (ECB) were putting pressure on Portugal to follow Ireland and Greece and seek aid in order to save Spain — the EU’s fifth-largest economy — from having to do the same.
The paper quoted a source in Germany’s finance ministry as saying: “If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal.”
PHOTO: BLOOMBERG
Many analysts believe Portugal will be the next nation to seek assistance from the EU’s 750 billion euro (US$999.75 billion) rescue fund, and there are fears that Spain might be forced to follow suit.
On Thursday, top EU officials sought to assure markets that there was no risk of the eurozone breaking up after investors, stung by Ireland’s debt crisis, pushed the borrowing costs of Portugal and Spain to record highs.
German Chancellor Angela Merkel, who unsettled markets by her comment this week that the euro was in an “exceptionally serious” situation, said she was confident the eurozone would emerge stronger from the crisis.
Europe was now showing “more solidarity than a year ago,” she told a conference in Berlin.
Eurogroup President Jean-Claude Juncker, pitched in saying in a newspaper interview he was not worried about the survival of the euro.
And Klaus Regling, chief of the euro’s financial safety net, -the European Financial Stability Facility (EFSF), was even more emphatic when asked by German daily Bild about the risk of the eurozone falling apart: “There is zero danger. It is inconceivable that the euro fails.”
Some economists and commentators, mostly in Britain and the US, have suggested the bloc launched in 1999 could split because of high debts and deficits of nations on its periphery and their inability to compete with Germany.
However, Regling said: “No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically, Europe would only have half the value without the euro.”
In another effort to shore up confidence, ECB policymakers on Thursday brushed off the flare-up in debt market turmoil and said the bank’s plans to scale back its crisis support remained on track.
Greece received a three-year 110 billion euro EU/IMF bailout in May, leading to the creation of the EFSF, which Ireland has now applied to tap to cope with the enormous cost of bailing out its banks.
The Irish government said it was confident it would be able to pass the toughest budget in the country’s history next month to meet the terms of an EU/IMF rescue under negotiation.
However, Irish Prime Minister Brian Cowen was set for the first backlash from an unprecedented austerity package when results of a by-election the -northwestern county of Donegal were due yesterday.
Cowen’s 15 billion euros in spending cuts and tax increases unveiled on Wednesday will form the basis for an IMF/EU rescue package worth about 85 billion euros, but the plan failed to impress markets amid doubts the fragile coalition would be able to push it through.
German Bundesbank chief Axel Weber, a powerful member of the ECB’s policy council, said he was convinced EU leaders would do whatever it takes to repel what he called an “opportunistic attack” on the currency area.
He also said the EU has set aside enough money to cover the -borrowing needs of the four financially troubled members of the eurozone — Greece, Ireland, Portugal and Spain — and could muster more if needed.
“If that is not enough, I am convinced eurozone states will do what is necessary to protect the euro,” Weber told French business and political leaders in Paris.
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