Portugal says does not need bailout as debt crisis spreads

Although the focus of Europe's sovereign debt crisis has shifted from Ireland to the Iberian Peninsula, Portugal, with its spiralling budget deficit and sluggish economic growth is on a denial mode for any European Union-led rescue package to shore up the nation's struggling economy.

The prime minister Jose Socrates stressed that the country did not need an international aid, and is aiming to cut this year's budget deficit to 7.3 per cent of gross domestic product from 9.3 per cent in 2009, and further targeting to reduce it to 4.6 per cent in 2011, below the expected average for the EU.

Last week, the Portuguese parliament adopted an austerity budget for 2011, in its efforts to rein the crisis and avoid a potential bailout similar to that of Greece and Ireland. (See: Irish crisis forces Portugal to adopt austerity budget for 2011)

As part of its efforts to contain the budget deficit, the government yesterday agreed to let Portugal Telecom, the country's largest telecom company, transfer its €2.8 billion pension fund to the government treasury.

The fund is valued at approximately 1.6 per cent of the nation's gross domestic product. In return, the government will assume the telecom company's pension liabilities.
Portugal Telecom will pay the difference between the amount currently in the fund and its present liabilities, which amount to around €1 billion, in three instalments from December 2010 to December 2012.

On Wednesday, the government has successfully issued €500-million worth of bonds, but the yields were higher than that for the previous issue.