ECB urged Portugal to seek rescue

Mr Socrates stood down as prime minister after failing to pass austerity measures

Portugal’s bail-out request is expected to be discussed when EU finance ministers meet later in Budapest.

European Central Bank head Jean-Claude Trichet is also likely to mention Portugal at his news conference after the latest eurozone rate decision.

The ECB is expected to raise interest rates, which could create problems for debt-ridden countries.

Portugal’s caretaker Prime Minister Jose Socrates said on Wednesday he had asked the EU for financial assistance.

Portugal follows Greece and the Irish Republic in seeking a bail-out.

However, Spain was quick to say it would not be following these countries in seeking assistance.

Spain’s Economy Minister Elena Salgado said that financial markets were perfectly capable of distinguishing between the situations in Portugal and Spain.

In an interview on the national radio station SER, she said that the risk of contagion was “absolutely ruled out”, and added it was clear that Spain’s economy was much more competitive than Portugal’s.

Spain has the EU’s highest unemployment rate and is struggling to deal with a banking crisis and the collapse of its property boom.

In Portugal, Mr Socrates put off a bail-out request as long as he could, having stepped down as prime minister after failing to pass austerity measures.

“I always said asking for foreign aid would be the final way to go but we have reached the moment,” he said.

“Above all, it’s in the national interest.”

European Commission President Jose Manuel Barroso said in a statement that Portugal’s request would be processed “in the swiftest possible manner, according to the rules applicable”.

He also reaffirmed his “confidence in Portugal’s capacity to overcome the present difficulties, with the solidarity of its partners”.

Mr Socrates did not say how much aid Portugal would ask for. Negotiations will now be underway and the BBC’s business editor Robert Peston said rescue loans could amount to as much as 80bn euros ($115bn; £70bn).

On Wednesday, the government raised about 1bn euros after tapping the financial markets in order to repay loans, but will have to pay a higher interest rate to lenders.

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.

Since then several rating agencies have downgraded the country’s debt.

Elections are likely to take place in a few months’ time.

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