Berlin/Lisbon : Eur-opean officials denied "absolutely false" reports Portugal was under pressure to seek a bailout and Spain ruled out yesterday needing help to manage its finances, despite fears of a spreading euro debt crisis.
The Financial Times Deutschland quoted unidentified sources as saying some Eurozone states wanted Lisbon to seek aid in order to avoid Spain, the fifth largest EU economy, from having to follow suit.
"If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quoted a source in Germany's Finance Ministry as saying.
EU Commission President Jose Manuel Barroso dismissed the FT report as "absolutely false, completely false", saying an aid plan for Portugal had neither been requested nor suggested.
It also prompted a vehement denial from Portugal, whose struggles to meet fiscal targets for this year have increased investors' doubts about the credibility of its consolidation strategy.
Austerity budget
Portugal's parliament approved an austerity budget for next year yesterday designed to address those concerns and trim its budget deficit to 4.6 per cent of gross domestic product, from a projected 7.3 per cent this year.
A German government spokesman said Berlin was not pressuring anyone to request financial help and said it expected Portugal's austerity measures to work.
A Spanish government source also denied Madrid was pushing Lisbon to seek help in the wake of Ireland's call for aid, which is meant to draw a line under its debt crisis and prevent it destabilising the rest of the Euro-zone.
Dublin will likely agree terms on a 85 billion euro (Dh416 billion) aid deal by the start of this week, German Finance Minister Wolfgang Schaeuble said. He hoped the rescue would restore calm to markets and end "exaggerated speculations".
The Irish government said it was confident it would be able to pass the toughest budget in the country's history next month to meet the terms of EU/IMF rescue deal.
However, it conceded defeat in a parliamentary by-election yesterday, further weakening Prime Minister Brian Cowen's ability to pass spending cuts and tax increases of 15 billion euros on which the bailout depends.
Survey results
The rapid public denials of the FT report suggested some alarm among euro area leaders at the prospect of the debt crisis engulfing ever more of its members.
A Reuters poll last week showed 34 out of 50 analysts surveyed believe Portugal will be forced to ask for help although only four thought Madrid would seek aid.
The cost of borrowing rose again yesterday for Ireland, Portugal and Spain as markets demanded a bigger premium for holding their debt.
Spain has already passed its own austerity budget and Spanish Prime Minister Jose Luis Rodriguez Zapatero "absolutely" ruled out that Madrid would have to follow Ireland and Greece and seek financial assistance.
"Those who are taking short positions against Spain are going to be mistaken," he told RAC1 radio.
Spain hopes its austerity measures, progress on deficit reduction and restructuring its weaker banks will enable it to avoid an Irish- or Greek-style meltdown.
But if it did succumb, EU funds would be stretched.
Meeting Spain's financing needs for 2-1/2 years would cost 420 billion euros, says Capital Economics, the bulk of the 440 billion euro European Financial Stability Facility (EFSF) the Euro-zone set up after the Greece bailout. Two EU funds, augmented with International Monetary Fund backing, could provide loans worth 750 billion euros in total.
On Thursday, top EU officials said there was no risk of the Eurozone breaking up and German Chancellor Angela Merkel, who unsettled markets by saying the euro was in an "exceptionally serious" situation, said she was confident the euro area would emerge stronger from the crisis.
