Mid-May target for Portugal aid

The views of Portuguese Finance Minister Fernando Teixeira dos Santos (left) will be key at the meeting

The European Union will discuss the size and terms of Portugal’s bail-out on Friday after receiving a formal request for aid late on Thursday.

EU finance ministers at a two-day summit in Budapest are likely to consider the scope of a potential deal.

But there is doubt about whether Portugal’s caretaker government can agree to the austerity measures that would be a prerequisite for the loans.

Jose Socrates’ government fell because he could not pass austerity measures.

At the EU finance minister’s meeting in Hungary, Spain’s finance minister has continued to stress that her country will not need bailing out.

Elena Salgado said that “of course” Portugal would be the last eurozone country that needed a debt bail-out and added that Spain applying for one was out of the question.

The European Commission was clear on Wednesday that it would discuss a deal with the current Portuguese authorities, stressing that with the Irish Republic’s bail-out it had spoken to opposition parties, business leaders and trade unions before agreeing to loans.

The Irish Republic’s bail-out took six weeks to negotiate, a time period that would take Portugal close to its scheduled elections on 5 June.

The next step in the negotiations on a bail-out will be for the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) to send a joint mission to Portugal.

EU rules require such a mission to be sent to a country asking for financial aid, to establish the details of the help needed.

Portugal’s cost of borrowing has risen sharply since the minority socialist government resigned last month after its proposed tougher austerity measures were defeated in parliament.

The ECB said on Thursday that it had encouraged Portugal to seek financial aid.

Portugal’s problems have been different from those of Greece and the Irish Republic, the other countries that have needed bailing out.

Low economic growth and high wages have meant that the country has struggled to raise enough money through taxation to pay for government spending.

When the banking crisis came, it found itself dealing with the same rising costs of debt that other countries had to deal with, and has finally had to concede that it cannot raise the money it needs through financial markets.

The Republic of Ireland on the other hand, had a much more severe banking crisis, largely as a result of a property bubble that burst.

Greece went on a debt-fuelled spending spree while failing to sort out the public finances to fund it.

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