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Fernando Teixeira dos Santos: Portugal's acting finance minister says his country needs financial aid. Armando Franca/AP

Portuguese finance minister admits: 'We're going to need a bailout'

A third Eurozone country admits the need for foreign help after a new bond auction sends interest rates spiralling.

PORTUGAL’S FINANCE MINISTER has admitted that his country will require emergency financial aid, after a bond auction this morning saw the interest rates demanded of his government rise significantly.

Fernando Teixeira dos Santos - who remains in office in a caretaker capacity, despite his government’s resignation last month after it lost a crucial budget vote aimed at staving off the need for help – said this morning’s auction of treasury bills showed that market prices were too high for his country to sustain.

“In this difficult situation, which could have been avoided, I understand that it is necessary to resort to the financing mechanisms available within the European framework,” dos Santos said. His remarks came ahead of a statement from the acting prime minister, Jose Socrates, later tonight.

The country was forced into offering an interest rate of 5.9 per cent on 12-month bills auctioned this morning, while bills maturing in six months commanded an astonishing yield of 5.11 per cent. By comparison, an auction of identical bills last month resulted in interest rates of 4.3 and 3 per cent respectively.

Though today’s issue of new bills was successful, and ensured that Portugal would have enough cash to meet its obligations when a previous round of bonds matures in the coming weeks, the sudden spike in interest rates all but sealed the country’s fiscal fate in the wake of repeated cuts to Portugal’s credit rating in the past weeks.

Portugal, like Greece and Ireland before it, had been trying to resist taking EU and IMF funds – a move that could lock the country into several more years of budget cutbacks, further diminishing the standard of living in what is already one of the Eurozone’s poorest countries.

The country could, however, seek to arrange only a short-term funding package that would tie it over until a new government is appointed after elections on June 5.

The need for Portugal to dip into the EU and European Central Bank’s bailout mechanisms will also reawaken the debate on Ireland’s interest rate, as all parties will be anxious to ensure that the conditions of any Portuguese funding do not kill off any chance for a medium-term economic recovery.

The 5.83 per cent interest rate being charged on Ireland’s borrowings would compare favourably, however, to the 8.942 per cent rate currently demanded of Portugal for eight-year borrowing.