European Leaders Urge Portugal to Commit to Austerity Measures

European leaders on Friday called on Portuguese political parties to commit to tough financial targets, amid fears that the country may require a bailout from Europe and the International Monetary Fund. The move comes as Portugal's government, led by Prime Minister Jose Socrates, faces mounting pressure to implement austerity measures in exchange for financial aid. Despite Socrates' insistence that Portugal will not need a bailout, most analysts expect the country to seek help, citing its unsustainable borrowing costs and the recent failure of its latest austerity measures to pass.

Key Takeaways:

• European leaders have urged Portugal to commit to tough financial targets, including deficit reductions, in exchange for financial aid.
• The Portuguese government, led by Prime Minister Jose Socrates, faces mounting pressure to implement austerity measures, despite Socrates' insistence that the country will not need a bailout.
• Analysts expect Portugal to seek a bailout from Europe and the International Monetary Fund, due to its unsustainable borrowing costs and the recent failure of its latest austerity measures to pass.
• The Portuguese government has announced plans for new elections, expected to take place in late May or early June, which may delay the implementation of austerity measures.
• The failure of the Portuguese government to implement austerity measures has raised concerns for the much larger Spanish economy, which may be at risk of contagion.

Statistics:

• The estimated amount of money required for a potential Portuguese bailout is around 75 billion euros ($106 billion), as speculated by European leaders.
• The current borrowing costs in the bond market for Portugal have reached unsustainable levels in the medium or long term, as described by the country's finance minister.
• The estimated amount of money required for Western European banks to raise in case of a default by Greece, Ireland, Spain, and Portugal is 250 billion euros, according to Standard & Poor's.
• The planned stability fund for the euro currency is 500 billion euros, starting in 2013.
• The bailout for Portugal is expected to be delayed by an election campaign expected to last two months.

Sources:

• Socrates, Jose. "Portugal will not need help." News conference, Friday.
• Juncker, Jean-Claude. "A backstop of around 75 billion euros might be required." Public statement, Friday.
• Standard & Poor's. "Estimated amount of money required for Western European banks to raise in case of a default." Analysis, This week.
• European leaders' conference. "Tighter rules for the euro and a long-term backstop fund of 500 billion euros." Agreement, This week.