27 Nov 2010

EU denies Portgual next to need bail-out

6:05 am on 27 November 2010

European Commission President Jose Manuel Barroso has dismissed reports that Portugal is next in line for a financial rescue package.

Mr Barroso said the reports were "absolutely false, completely false". The Portuguese government has made similar denials.

Speculation that Portugal would follow the Irish Republic in asking for help has been rising this week.

Portugal approved its 2011 budget on Friday, which aims to cut its debts.

The budget seeks to cut the country's deficit from 7.3% of economic output this year to 4.6% in 2011.

The BBC reports public spending will be cut and VAT increased to a maximum rate of 23%.

Euro down

Meanwhile, the euro has fallen sharply on fears that the problems experienced by the Irish Republic could spread to other countries in the eurozone.

The euro fell one cent against the dollar to $1.3265 on Friday. It has now fallen by almost four cents, or 3%, this week.

A report in the Financial Times Deutschland suggested that some eurozone countries and the European Central Bank were putting pressure on Portugal to ask for financial assistance.

However, the Portuguese government said the reports were "completely false".

Germany Finance Minister Wolfgang Schhaeuble also dismissed the reports.

Bigger fund needed?

On Thursday, German central bank boss Axel Weber said the bail-out fund could be increased in size by a further 100 billion euros ($US134 billion) if needed. It currently stands at 440 billion euros.

This week's fall in the euro was triggered by the Irish Republic's request for financial assistance last weekend.

It is currently negotiating with the European Union and the International Monetary Fund over a rescue package expected to amount to 85 billion euros.

The Republic will be the second eurozone economy to be rescued, after Greece was granted a bail-out worth 110 billion euros over the summer.