Portugal says EU can’t force bailout as buzz grows it's unavoidable

LISBON: Portuguese finance minister Fernando Teixeira dos Santos said European Union governments can’t impose a bailout on his country even as speculation mounts that Portugal will eventually have to ask for one.

“There are those who think that the best way to preserve the stability of the euro is to push and force the countries that at this moment have been more under the floodlight to that aid,” Teixeira dos Santos told Jornal de Noticias in an interview. The comments, made on Thursday, were confirmed by the finance ministry. “But that is not the vision or the political option of the countries that are involved.”

Portuguese bonds have dropped as the government struggles to convince investors it can avoid the fate of Ireland and Greece, which have asked for EU bailouts this year. A majority of euro region governments and the European Central Bank are putting pressure on Portugal to accept a bailout to stop contagion spreading to Spain, the Financial Times Deutschland said on Friday. A Portuguese official at the office of Prime Minister Jose Socrates said the government is not facing pressure. A German finance ministry spokesman declined to comment. The ECB declined to comment.

However, European officials have denied “absolutely false” reports Portugal was under pressure to seek a bailout and Spain ruled out on Friday needing help to manage its finances, despite fears of a spreading euro debt crisis. The yield on Portugal’s 10-year government bond yield fell 7 basis points to 6.93 on Friday, pushing the spread over German equivalents to 426 basis points. Spain’s spread widened to a record 252 basis points. Ireland was forced to ask for a rescue on November 21, eight days after officials were pressed on an ECB conference call to accept aid.

Portugal’s finance minister said his country doesn’t need a rescue because his country’s position is not as serious as Ireland’s.

Portugal has almost 10 billion euros of bonds that come due during the first half of 2011, according to the government debt agency. It doesn’t face other bond redemptions next year.

“It has been clear that what we are betting on is on ensuring conditions for Portugal to continue financing itself in markets to ensure the functioning of public administration, and also to be able to regularize the financing mechanisms for the private sector, through the financial sector,” Teixeira dos Santos told the paper.