The head of the European Commission has said European states are not pressing Portugal to seek aid to ease its debt problems. Speaking in Paris, Jose Manuel Barroso also criticised some EU leaders for stirring panic.
'No reference to an aid plan for this country has been asked for and none has been suggested,' the commission president told reporters, playing down reports that Portugal might follow Ireland in seeking a bail-out.
Portugal had earlier denied a news report that it was under pressure from most euro zone countries and the European Central Bank to seek a bail-out.
'This news article is completely false, it has no foundation,' a government spokesman said.
Lisbon today passed an austere 2011 budget that it hopes can deliver tough spending cuts to ward off the euro zone debt crisis.
The Financial Times Deutschland reported today that a majority of euro zone countries and the European Central Bank were pressing Portugal to follow Ireland and Greece and seek aid from the European Union and International Monetary Fund.
Economists have said Portugal is the likely next weak euro zone country to need a financial rescue as it struggles with low competitiveness and a high budget deficit.
Prime Minister Jose Socrates has repeatedly denied that his country needs a bail-out. The government aims to cut the deficit to 4.6% of gross domestic product next year from 7.3% this year.
But Portugal's risk premiums, measured by its 10-year bond yields compared to safer German Bunds, hit record highs this week as concerns rose after Ireland sought a bail-out.
Portugal's budget deficit is considerably lower than that of Ireland and it has none of the banking problems of Dublin. But Lisbon has still been targeted by investors as possibly needing a bail-out because of its spiralling debt costs.
Lisbon aid move would prevent similar Spanish move
Without revealing its sources, the Financial Times Deutschland said a majority of euro zone countries and the European Central Bank were putting pressure on Portugal to follow Ireland and Greece and seek aid in order to save Spain - European Union's fifth-largest economy - from having to do the same.
The paper quoted a source in Germany's finance ministry as saying: 'If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal'.
Top EU officials yesterday sought to assure markets that there was no risk of the euro zone breaking up after investors pushed the borrowing costs of Portugal and Spain to record highs, where they remain today.
The yield, or interest rate, for Irish government bonds reached new highs of over 9.34% this evening, though Ireland is unlikely to be entering the bond markets in the short-term.
German Chancellor Angela Merkel, who unsettled markets by her comment this week that the euro was in an 'exceptionally serious' situation, said she was confident the euro area would emerge stronger from the crisis.
Europe was now showing 'more solidarity than a year ago', she told a conference in Berlin.
The chairman of euro zone finance ministers, Jean-Claude Juncker, pitched in by saying in a newspaper interview he was not worried about the survival of the euro.
Klaus Regling, chief of the euro's financial safety net, European Financial Stability Facility (EFSF), was even more emphatic when asked by German daily Bild about the risk of the euro area falling apart: 'There is zero danger. It is inconceivable that the euro fails.'
'No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically, Europe would only have half the value without the euro,' he said.
In another effort to shore up confidence, ECB policymakers yesterday brushed off the flare-up in debt market turmoil nd said the bank's plans to scale back its crisis support remained on track.
Greece received a three-year €110 billion EU/IMF bailout in May, leading to the creation of the EFSF, which Ireland has now applied to tap to cope with the enormous cost of bailing out its banks.
A Reuters poll this week showed 34 out of 50 analysts surveyed believe Portugal will be forced to ask for help. In a separate survey only four out of 50 economists thought Spain would seek aid.
Zapatero 'absolutely' rules out rescue for Spain
Prime Minister Jose Luis Rodriguez Zapatero today 'absolutely' ruled out a rescue for Spain even as markets cranked Spain's debt risk premium up to record highs.
The prospect of a rescue for Spain's economy, which is twice the size of that of Ireland, Greece and Portugal combined, is sowing deep concern in world financial markets.
Investors are demanding increasingly high rates in return for taking the risk of buying Spanish debt, adding to the problems faced by Madrid in raising fresh cash.
The gap between safe-bet German 10-year bonds and comparable Spanish bonds leapt to a record 2.60 percentage points in morning trade. A few months ago the gap was 1.70 percentage points.
'I am not delivering a message of confidence just because I want to but because of concrete facts,' Zapatero said in an interview on Spanish radio.
The prime minister said Spain's public debt was considerably lower than the European average. European Union figures show public debt averaged 74.7% of GDP for member states in 2009, hitting 78.1% in France and 73.4% in Germany. But in Spain the public debt amounted only to 53.2%.
'Those who make short term bets against Spain will be making a mistake,' Zapatero said, adding that there was 'no scenario' under which a rescue of Spain could be envisioned.
'Those who push this idea are not contributing to calm,' he said.
Spain was cleaning out the bad elements which 'grew the economy, in part artificially' said Zapatero, referring to a property boom which collapsed and pushed the country into recession at the end of 2008.
