Portugal's prime minister says his country will ask for a bailout due to its high debts and difficulty raising money on international markets.
"I want to inform the Portuguese that the government decided today to ask ... for financial help, to ensure financing for our country, for our financial system and for our economy," Prime Minister Jose Socrates said in a televised evening address to the nation.
Portugal would become the third financially troubled euro zone country after Greece and Ireland to accept assistance from Europe's bailout fund and the International Monetary Fund.
Analysts expect it will need up to $110 billion.
Socrates, cornered by his country's mounting financial difficulties, said Portugal was giving up its yearlong battle to avoid asking for a bailout from its European partners.
"This is an especially grave moment for our country ... and things will only get worse if nothing's done," Socrates said, adding that a bailout was "the last resort."
The move had long been expected as Portugal, one of the 17-nation euro zone's smallest and weakest economies, struggled to finance its economy.
Market confidence in Portugal's financial future has evaporated over the past year as investors bet the country would not be able to manage its debt load on its own. The yield on its 10-year bond, for example, rose to a new euro-era record of 8.78 per cent Wednesday.
Over the past year, Portugal has insisted it doesn't want assistance because the terms of a big loan would lock it into austerity measures for years, lowering the standard of living in what is already one of western Europe's poorest countries. Athens and Dublin were reluctant to accept help for the same reasons.
But authorities have been cornered by the crisis. Rating agencies have downgraded Portuguese bonds to near junk status in recent weeks as new figures showed its debt load is worse than initially thought.
Country in political limbo
Added to that, the government quit last month after opposition parties rejected its austerity measures, and the country is in a political limbo until a June election, making it uncertain who might ask for help.
Investors, including the country's main banks, are balking at providing funds to Portugal out of fear it may not be able to settle its debts. As financing dries up, companies could have problems finding money to pay wages. The unemployment rate last year reached a record 11.2 percent.
Portugal's bankers had urged the caretaker government to ask at least for a bridge loan of at least $14.3 billion US to see it through the election.
The president of the Portuguese Association of Banks, Antonio de Sousa, said substantial financial support is "urgent."
"The banks have no more credit left to give," he was quoted as saying Wednesday by national news agency Lusa.
Portugal managed to raise about $1.4 billion in a treasury bill sale Wednesday but paid an unsustainably high interest rate to get the cash.
Investors asked for high interest rates — 5.11 per cent and 5.9 per cent — to part with their money. In similar auctions last month, Portugal paid a rate of just under three per cent on six-month bills and 4.3 per cent on 12-month bills.
"Portugal was able to issue debt once more, but the rates are prohibitive," Filipe Silva, debt manager at Banco Caregosa, said. "The big question ... is where the buyers will come from for future sales."