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January 10, 2011

Portugal Tells Skeptics No Bailout Needed

As warning signs mount, Portugal is urgently fighting the rising perception that it will be the next European country to need an international financial bailout.

Prime Minister Jose Socrates said Tuesday that Portugal had beaten its 2010 goal for reduction of its budget deficit. He said the country will not need to follow Greece and Ireland in seeking outside financial assistance "for the simple reason that it is not necessary."

But financial warning signs loom for Portugal. Its central bank predicted its economy would contract by 1.3 percent this year. And the interest rates on its borrowing have occasionally topped seven percent in the last two months. Both Greece and Ireland were forced to seek international financial assistance in less than a month once their borrowing costs reached that level.

Meanwhile, Japan said it would join China in buying European bonds in an effort to shore up the continent's economy.

Japan said it would buy at least 20 percent of the initial installment of bonds used to finance the continent's bailout fund. The bonds are aimed at rescuing Ireland.

While Mr. Socrates said Portugal would not need outside help, an economist at its central bank said an eventual bailout of the country was "probable." Teodora Cardoso said the country could regain the confidence of financial markets for its borrowing "if we have external aid."

Portugal says it cut its budget deficit below a 2010 target of 7.3 percent of its overall economy. It hopes to reduce that figure still further to 4.6 percent this year after adopting painful austerity measures including wage cuts for civil servants and higher taxes.

Some information for this report was provided by AP, AFP and Reuters.