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By BARRY HATTON and ALAN CLENDENNINGAssociated Press(AP:LISBON, Portugal) Portugal asked for a bailout Wednesday to relieve its crushing debt, joining Greece and Ireland by becoming the third European nation to ask for outside help amid a bruising European financial crisis.
Prime Minister Jose Socrates went on national television to announce that Portugal must take international assistance to save its rapidly deteriorating economy, after months of insisting that he would do everything possible to avoid a bailout.
Socrates said his caretaker government asked "for financial help, to ensure financing for our country, for our financial system and for our economy."
He did not say how much Portugal would seek, but analysts have predicted Portugal will need up to euro80 billion ($114 billion). That amount is bearable for Europe's finances unless other nations _ notably Spain _ end up asking for help.
Portugal urgently needs the rescue because has been forced to pay increasingly unsustainable interest rates to persuade investors to buy its debt. Banks from Spain to Germany are heavily exposed to the possibility of a Portuguese default, which would threaten the very existence of the eurozone.
But experts believe a package to save Portugal will be crafted by the European Union and the International Monetary Fund, and European Commission President Jose Manuel Barroso said in a statement the Portugal's request "will be processed in the swiftest possible manner."
The IMF said in a statement Wednesday night that it had not yet received a request for financial assistance from Portugal, but added that "we stand ready to assist Portugal."
Portugal has one of the 17-nation eurozone's smallest and weakest economies and has struggled for months to finance its economy amid investor fears that it is incapable of settling its debts.
Socrates announced his resignation two weeks ago after opposition parties refused to accept additional austerity measures he proposed to stave off a bailout, but he agreed to stay on as a caretaker leader until the nation holds new elections in June.
There was confusion over whether he could ask for a bailout in his current post because of doubts whether Portugal's constitution permitted an interim leader from doing so, but Socrates said in his speech that he hoped opposition party leaders would support his decision.
"This is an especially grave moment for our country," he said. "And things will only get worse if nothing's done."
Other European nations have been urging Portugal for months to accept outside help in a bid to contain the continent's debt crisis from spreading to other European nations, amid market fears that the eurozone itself could break apart if it didn't.
The biggest risk for investors is Spain, which has the zone's fourth largest economy and could be too big to bail out. Economic conditions in Spain are especially grim _ with one out of every Spaniards out of work _ but analysts generally agree that the government has recently put in place enough austerity measures to prevent the country from becoming another bailout victim.
Portugal insisted for nearly a year that it would not seek outside assistance because terms of a bailout would lock it into austerity measures like tax raises and wage cuts for years. And that, Socrates and other said, would further lower the standard of living in a nation already hurting with high unemployment and few job prospects for a young and highly educated work force.
Greece and Ireland faced the same difficult situation, but ended up asking for bailouts when it became clear they had no choice.
Portugal' economic troubles differ from Ireland, where banks became over- leveraged because of a real estate boom that went bust, and Greece, where government officials lied about the nation's financial health.
Portugal's troubles are rooted in a decade of measly growth averaging only 0.7 percent a year while it simultaneously amassed huge debts to finance social programs and government expenses to give the Portuguese benefits similar to their richer European neighbors.
Investor were not convinced that the moves were sustainable, and their fears amplified over the last six months as buyers of Portuguese bonds increasingly demanded higher returns to buy the nation's debt
The yield on Portugal's 10-year bonds hit 8.54 percent Wednesday before Socrates made the bailout announcement, up from 5.8 percent a year ago.
The higher yields are unsustainable, especially because Portugal is expected to enter a double-dip recession this year.
The resignation of Socrates' government left the nation without a fully operating administration, amplifying market fears. Two ratings agencies subsequently downgraded Portugal's bonds to just one notch above junk level in recent days, triggering widespread alarm across Europe.
Socrates blamed opposition parties for forcing him to make the bailout request because they rejected a fresh round of austerity cuts endorsed by European Commission and European Central Bank. He had been seeking a new round of tax hikes along with pay and welfare programs cuts, and had promised he would quit if they were not approved.
Portugal managed to raise about euro1 billion ($1.43 billion) in a Treasury bill sale Wednesday before Socrates made the bailout announcement, but investors demanded record interest rates.
Portugal's short-term borrowing rates then rose above what it would likely have to pay for bailout loans as the yield on five-year bonds on the secondary market hit 10 percent. In contrast, Irish average interest rates _ currently under review for a decrease _ stand at 5.8 percent for loans with longer maturities.
Analysts believe Portugal probably has enough money in reserve to repay a euro4.5 billion ($6. billion) loan that falls due later this month, but predict it would be extremely difficult for the nation to find almost euro7 billion ($10 billion) to roll over and make interest payments in June.
On top of that, Portugal still needs to collect funds to keep the country running.
The bailout request came as Portugal's biggest banks announced they will no longer buy national debt as they deal with their own liquidity problems amid heavy assistance from the European Central Bank.
Amid tightened financing, predictions abound that Portuguese companies may face difficulties making their payrolls. And Portugal's unemployment rate last year reached a record 11.2 percent, with gloomy prospects of any relief for job seekers.
Across the border in Spain, Prime Minister Jose Luis Rodriguez Zapatero announced last weekend that he would not seek a third term next year as Spain's financial problems deepen, but said he made the decision in keeping with his decision years ago that two four-year terms were enough.
Spain's leading opposition party renewed its call for immediate special elections because of the country's troubled economy, with more than 20 percent unemployment that is the eurozone's worst jobless rate.
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Clendenning reported from Madrid.
Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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