Political Divide Poses Risks for Portugal in Bailout Talks

LISBON — Portugal’s request for an international bailout puts European leaders in the difficult position of drafting a package of austerity measures and financial aid that will survive the country’s caretaker government.

European officials are hoping to avoid a repeat of the volatility that occurred in Ireland, where a new Irish government is now seeking to reopen its aid deal and alter the terms.

Financial markets had anticipated Portugal’s need for assistance as its costs of financing had risen to unsustainable levels, and investors generally shrugged off the news on Thursday. The European Central Bank, meanwhile, raised its benchmark interest rate for the first time since 2008, suggesting it was unworried about further economic deterioration and contagion among Europe’s peripheral economies, including Spain.

The latest European call for assistance, which is the third after the rescues of Greece and Ireland last year, comes amid a leadership vacuum in Portugal. The Socialist prime minister who requested the bailout, José Sócrates, is leading a caretaker government until the general election on June 5. He resigned last month after center-right opposition lawmakers, led by the Social Democratic Party, rejected his austerity package.

Although opposition leaders agree on the need for a bailout, reaching consensus will not be easy. Tough austerity measures similar to those recently rejected will almost certainly be demanded by European lenders and, most likely, the International Monetary Fund. Portugal is already struggling with record unemployment and an economy that is expected to contract 1.3 percent this year, according to its central bank.

“From the point of view of being able to negotiate good terms for the Portuguese economy and display a firm commitment that might make the European Commission and the I.M.F. less demanding, this could not have happened at a worse time,” said Pedro C. Magalhães, a professor of politics at the University of Lisbon.

Lisbon’s request for aid also puts additional pressure on other ailing European economies, in particular Spain, which has undertaken austerity measures, a pension overhaul and a cleanup of its banking sector to stay out of danger. Any rescue request from Spain — with an economy larger than that of Greece, Ireland and Portugal combined — could put the European common currency project at risk.

On Thursday, Spain held a successful bond auction, raising 4.1 billion euros ($5.8 billion) at a yield that was little changed from three months ago. Separately, France sold 9.49 billion euros in bonds Thursday, drawing strong demand.

The Spanish sale “confirms that there are no signs of a contagion spreading to Spain at present,” said Chiara Cremonesi, a fixed-income strategist in London for UniCredit. “Spain continues to be perceived by investors as part of the safer periphery countries group.”

In Lisbon, politicians from both sides are expected to meet in the coming days to work out details of their bailout package request. One estimate by a European official put Portugal’s needs at approximately 75 billion euros, but some analysts have suggested that the amount could be as much as 110 billion euros.

Last year, Greece secured a rescue package worth 110 billion euros. Ireland received 85 billion euros.

The cabinet minister in the caretaker government, Pedro Silva Pereira, confirmed the formal rescue request, but would not comment on the amount of aid requested, saying that the next steps would be defined by the European Commission. Jean-Claude Trichet, president of the European Central Bank, said the bank had “encouraged Portuguese authorities to ask for support.”

If the pattern of previous bailouts is repeated, it could take several weeks for a team of Brussels officials to discuss the conditions of a bailout with Lisbon, which will ultimately need the approval of European finance ministers.

The negotiations will occur in the midst of an election campaign that will probably be dominated by the question of who is to blame for Portugal’s predicament. The Social Democratic leader, Pedro Passos Coelho, supported the decision to seek outside help, but he and Mr. Sócrates are blaming each other for putting Portugal in a desperate situation.

“What the election campaign is now about is who should assume the responsibility for inviting international creditors into Portugal,” said Diogo Ortigão Ramos, a partner at the law firm Cuatrecasas, Gonçalves Pereira. Mr. Silva Pereira said Portugal’s caretaker government had asked President Aníbal Cavaco Silva to talk to the opposition parties. On Thursday, Mr. Cavaco Silva, in a Facebook message, called for “responsible cooperation” on the part of the opposition parties to help negotiate an acceptable deal.

António Nogueira Leite, an economic adviser to the Social Democratic Party and a professor at the Nova School of Economics and Business in Lisbon, said, “We have to learn from the mistakes in Greece and Ireland and be able to argue for a different treatment, but obviously our room to maneuver has been diminished because we have postponed our call for help for much longer than we should have.”

Portugal’s muddled political situation also raises “problems of legal uncertainty,” notably over whether a dissolved Parliament could approve a rescue agreement, Mr. Magalhães, the politics professor, said. A new government is unlikely to take office before the end of June, with Portugal’s most recent opinion polls suggesting that the June vote could result in a hung Parliament.

Short-term needs must also be resolved. Portugal faces a bond redemption of 4.3 billion euros on April 15.

Some officials suspect Portugal might need to seek bilateral loans from other countries to tide it over. Others say the announcement of the aid request on Wednesday might drive down the cost of short-term borrowing for Portugal and avert a problem.

Portugal is now embarking on what will be its third international bailout since returning to democracy in the 1970s, with previous interventions by the I.M.F. in 1978 and 1983. This time, however, “the sense of punishment will be much stronger because the expectations of citizens are much higher than three decades ago, when Portugal was not even in the E.U.,” said António Vitorino, who was in the Portuguese government that negotiated the 1983 rescue and a former European commissioner.

In 1983, Mr. Vitorino noted, Portugal was able to revive an export-led recovery by significantly devaluing its currency — no longer an option under euro membership. “The money injection that we received had a much stronger short-term effect on our economy than it could have this time,” he said.

Raphael Minder reported from Lisbon and Stephen Castle from Brussels. Jack Ewing contributed reporting from Frankfurt.