Make us your home page

Portugal, Spain face international bailout pressure

LONDON — The debt crisis in Europe escalated sharply Friday as investors dumped Spanish and Portuguese bonds in panicked selling, substantially heightening the prospect that one or both countries may need to join troubled Ireland and Greece in soliciting international bailouts.

The draining confidence in Western Europe's weakest economies threatened to upend bond markets, destabilize the euro and drag out the global economic recovery if it is not quickly contained. It also underscored the mounting problems facing countries that over the past decade have over-borrowed and overspent and are now in danger of losing investor faith in their ability to make good on their massive piles of debt.

The perceived risk of debt defaults in Portugal and Spain drove their borrowing costs to new highs Friday, with the interest rate demanded on Portuguese bonds soaring to a point where it could effectively cut the Lisbon government off from raising cash to run the country.

Portugal was coming under pressure to immediately request a bailout from the European Union and International Monetary Fund. Officials in Lisbon responded by pushing through a painful round of budget cuts meant to reassure investors. Italian and Belgian borrowing costs also rose Friday.

The bigger fears, however, were eroding confidence in Spain, whose faltering economy is more than twice the size of the Greek, Irish and Portuguese economies combined.

Coupled with the pending bailout for Ireland and possibility Portugal, analysts said, a Spanish rescue could severely deplete the $1 trillion stability fund set up by the European Union and International Monetary Fund this year to contain the crisis.

Portugal, Spain face international bailout pressure 11/26/10 [Last modified: Monday, November 7, 2011 1:24pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Washington Post.

Join the discussion: Click to view comments, add yours