Portugal 'will not' quit the euro

By Andrew Walker
Economics correspondent, BBC World Service

Portugal will not leave the euro, says its finance minister

Portugal will not leave the euro, Finance Minister Fernando Teixeira dos Santos has told the BBC.

"We are very far from that scenario, I don't think the situation will lead to such an outcome," he said.

Currency traders had feared that some countries with large budget deficits - such as Greece, Spain and Portugal - might be tempted to leave the euro.

A country which left the euro could allow its currency to fall in value, and thus improve its competitiveness.

The chances are now that all governments in the eurozone will make a massive effort to keep it together.

'An exceptional situation'

However, Mr Teixeira dos Santos told BBC World Service's Business Daily programme that Portugal was dealing with difficult financial circumstances.

"We are facing an extraordinary and exceptional situation, due to a major financial and economic crisis without precedent in our recent history."

We are willing to take extra measures to reduce expenditure Fernando Teixeira dos Santos, Portuguese Finance Minister

Several countries in the eurozone have seen a rapid increase in the borrowing needs of their governments.

In Portugal in 2009, it was equivalent to more than 9% of national income.

While other countries have larger deficits, some observers say Portugal still faces a severe challenge.

This is because national savings by households and businesses are so low it will be a struggle to finance the government's budget deficit.

Bailout question

However, Mr Teixeira dos Santos pointed to the cost of policies to prevent the breakdown of the financial system, which he said would help stimulate Portugal's economy and support weaker groups in society.

He said the recovery would help tackle the deficit and added, "We are willing to take extra measures to reduce expenditure."

The trouble is that reducing spending is politically difficult, especially for a government that does not have a parliamentary majority.

The euro has risen as fears about European debt levels begin to recede

So lurking in the background is a big question - will there be bail-out either from the European Union, its leading member states or from the International Monetary Fund?

Mr Teixeira dos Santos was clear he doesn't want one.

"I would not say yes to a bail-out, because we have to make important reforms and corrections."

"Such a kind of a bail-out would look like some kind of anaesthesia that will not correct what we should correct."

"We have to face the public finance situation and correct it with our own efforts."

And what about all that speculation in the financial markets, reflected in higher borrowing costs for Portugal and higher costs for investors to insure against Portugal defaulting on its debts?

He said that to some extent Portugal and others had been targeted unfairly.