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Portugal warns it needs eurozone dimension

BRUSSELS, Feb 15, 2011 – Portugal warned on Tuesday that it needs help from eurozone partners to avoid getting sucked into deeper debt trouble, after its cost of borrowing soared on the back of the economic downturn.

Finance Minister Fernando Teixeira Dos Santos said Lisbon had slammed on the austerity brakes and enacted major reforms but added: "Now we also need what I would call the \’eurozone dimension\’ as part of these policies."

He stressed: "A country on its own cannot face up to the challenges posed by this crisis. We have to do our bit but we also need European efforts to stabilise the euro.

"We need this backstop to succeed in our own efforts," he said.

The minister said Portugal had already reduced its public deficit by two percentage points in 2010, with "very tough austerity measures" applied since, and warned of "several difficult months ahead."

The Portuguese economy shrank 0.3 percent in the fourth quarter of 2010, the national statistics office said Monday.

For 2011, it is forecasting growth of 0.2 percent but the central bank sees a contraction of 1.3 percent because of the austerity measures Lisbon has had to implement in an effort to balance the public finances.

Eurozone leaders decided Monday to almost double the effective lending capacity of a future bailout funding, as they cast a worrying glance at renewed pressures from the money markets on weaker eurozone states such as Portugal.

The yield — the rate of return paid on holders of Portugal\’s benchmark 10-year bond — rose to around 7.3 percent on Monday from 7.175 percent at close on Friday. It had risen as high as 7.636 percent at one point in the day.

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Spanish bond yields also rose, raising the spectre of fresh problems as European Union leaders try to settle their defences and fix economic policy inconsistencies across the eurozone, the subject of a special summit of eurozone leaders on March 11.

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