BRUSSELS – Portugal is unlikely to ask the European Union for a financial bailout during an EU leaders' summit on Thursday and Friday, but it cannot be ruled out, an EU source said on Thursday.
Portugal's borrowing costs have risen well above sustainable levels on market concern over its slow economic growth and large public debt, prompting speculation Lisbon will be forced to ask the EU for financial help like Greece and Ireland.
Portugal has so far strongly rejected the idea of a bailout and has announced a series of austerity measures to regain market confidence.
But Portuguese opposition parties refused to support the latest package of steps announced on March 11, forcing Prime Minister Jose Socrates to resign on Wednesday.
That increased speculation that Socrates will have to ask for a bailout, possibly even at the summit on Thursday and Friday as Portuguese benchmark 10-year bond yields rose to new record highs of 7.91 percent.
But the source said any immediate request for help was unlikely, with Socrates adamant that he will not ask for EU/IMF assitance, even in his capacity as caretaker prime minister.
"I would be surprised. There is a doubt on whether he has any mandate right now to do so ... But I would not rule out," said the EU source, who declined to be identified because of the sensitivity of the issue.
Some euro zone countries have been putting pressure on Lisbon to request help since last December, concerned that continued resistance would endanger the stability of the 17-country euro zone, but said no talks on a bailout had begun.
If Portugal were to request EU/IMF assistance, a realistic figure for the size of the package would be 80 billion euros, the source confirmed, adding that the EU's existing EFSF bailout fund had more than enough capital to handle it.
"A new mission from the IMF and the European Commission would anyway be necessary to determine the amount of a bailout," the source said.
At the summit, Socrates will have to lay out his plans for dealing with the latest crisis, the source said.
"The last Portuguese fiscal and budgetary plan doest not exist anymore so Socrates has to explain very clearly how he intends to proceed in the next days," the source said.
"The talks at the summit will focus on the politics. What are Socrates' plans, if there will be elections and how he plans to secure Portugal's financial stability," the source said.
"Obviously it's not only the financial stability of Portugal but of the whole euro zone. And that's the mesasage the other member states will deliver to Mr Socrates," it said.