Portugal asks for bail-out which could cost Britain £4.4 billion
Portugal last night became the third European Union country after Greece and Ireland to formally request an emergency bail–out which could cost Britain £4.4 billion.
The country's caretaker prime minister José Sócrates said the measure had been taken after the stricken nation had run out of options.
Economists last night put the UK's involvement in a Portuguese bail–out at up to a potential £4.4billion.
After months of resisting having to apply for a bail–out from the EU and the International Monetary Fund, Portugal's cost of borrowing has reached unsustainable levels.
Addressing the nation last night Mr Sócrates, said: "I have always said that asking for aid would be the final way to go, but we have reached the moment."
It is understood that the rescue fund could be as high as £70 billion, or €80 billion.
Sources close to the Treasury said last night that Britain would take part in any Portugal–related discussions involving the EU's 27 member states. However, the type of bail–out is yet to be discussed and therefore the extent of the UK's exposure was impossible to gauge, the sources said.
It is understood that a bilateral loan from the UK to Portugal has not been requested and that the Treasury does not foresee any circumstances under which such a request would arise.
José Manuel Barroso, the European Commission president, said last night that Portugal's request for help would be dealt with as quickly as possible. He assured Mr Sócrates that Portugal's request would be "processed in the swiftest possible manner, according to the rules applicable". He also said he had "confidence in Portugal's capacity to overcome the present difficulties".
The Portuguese government had previously said that the country did not need outside help and was able to finance its own debt.
Observers were last night wondering whether contagion from Portugal would spread to other eurozone countries such as Spain, whose economy is significantly larger than that of Portugal, Ireland and Greece combined.
Portugal had earlier promised to pay investors high rates of return to take up government bonds due to be repaid in six and 12 months, its second bond auction in less than a week.
The new economic crisis confronting Europe comes weeks after an EU summit to confirm a new permanent 700 billion euro bail-out facility for eurozone countries in trouble.
The UK will not be liable for any contributions from that fund, but is included in the current temporary 440 billion euro bail-out fund which was set up to help Greece and which runs until mid-2013.
The temporary fund has already been used to bail out Ireland, and now Portugal is expected to come calling to prop up its economy and shore up the shaky credibility of the euro.
That would oblige the UK to contribute under the terms of the temporary rescue scheme signed up to by then Chancellor Alastair Darling, and which was fiercely opposed at the time by George Osborne, who took his job after the election.
Now Mr Osborne may have to preside over the extension to Portugal of the UK commitment, albeit in the form of financial guarantees rather than actual cash.
UK Independence Party leader Nigel Farage said the UK should refuse to contribute to any bail-out.
Mr Farage said: ''The full tragic reality of the euro is now being seen. Bailing out Portugal is utterly pointless, it only traps them into a system into which they are totally unsuited. Britain should not contribute a single penny to their bail-out.''
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