Officials in Brussels and Germany expected to demand big reforms in return for rescue package bigger than Ireland's
Portugal's bailout requirement is 20% higher than previously thought, with hidden debt in state companies and private-public partnerships possibly to blame, according to sources in Lisbon.
Officials plan to ask for a €90bn (£79bn) bailout, making it an even larger aid package than the €85bn granted to Ireland, according to respected business daily Diario Económico. Previous reports had suggested Portugal required around €75bn.
The extra cash is needed, it is said, to cover government debt, state companies that are having trouble paying employees and the possible recapitalisation of Portuguese banks after future stress tests.
The request would signal deeper debt problems buried inside the Portuguese administration, with economist Nuno Garoupa pointing to both troubled public companies and a lack of reporting on the state of public-private partnerships covering hospitals and roads which will not be revealed until 2013.
Many economists believe that these hidden elements drive the country's real debt up towards 120% of GDP, rather than the 85% figure given by the government. "This is an open secret," said economist João César das Neves of Lisbon's Catholic University. "Europe knows it already."
It is also unclear how a rudderless country with a caretaker government led by the outgoing Socialist prime minister José Socrates would set about negotiating a bailout. A formal request for aid was to be delivered to Brussels tonight, cabinet minister Pedro Silva Pereira told reporters.
With fresh elections due on 5 June, the Socialists and the centre-right opposition Social Democrats are both anxious to pass responsibility for the bailout on to their opponents.
Socrates is said to favour taking up to a third of the total money in the coming weeks to tide the country over until a new government is installed. That government, which opinion polls show would probably be led by the Social Democrats, could then negotiate the rest.
But the Social Democrats are said to be pressing for the caretaker government to take the full bailout, so that blame for the strict conditions that will accompany it can fall on Socrates' party.
Either way, an opinion poll run this week by the Diario de Noticias newspaper showed that a minority government is the most likely outcome – meaning that the two parties will have to come to some agreement.
The Portuguese president Aníbal Cavaco Silva would play a crucial role in bringing the two biggest parties together.
Officials in Brussels and Germany's chancellor, Angela Merkel, are also expected to intervene to demand major reforms of the Portuguese economy, which has grown by an average of just 0.7% a year over the past decade.
The senior German lawmaker Volker Wissing, chairman of his parliament's finance committee, noted that Portuguese MPs had rejected Socrates' latest austerity measures. "Now they'll be determined from outside," he said.
The parties are already blaming one another for the spiralling cost of Portuguese debt, which forced Socrates to turn to the European Union for a bailout on Wednesday night.
The Social Democrats had refused to back a Socrates austerity package which was presented to parliament on 23 March, bringing his government down.
Questions also remained over whether either party was capable of pushing through structural reforms that would allow the country to grow.
Prof Garoupa, who teaches at Illinois University, said that Portugal was in a worse state than Ireland and Spain because it had spent its EU funds on consumption rather than investment and so had little potential for growth.
"We face another decade without growth," he said. Other economists said growth could come much earlier if the bailout is accompanied by meaningful spending cuts and reforms.
Portugal's economy is already expected to fall back into recession this year, shrinking by around 1%.
The country's hard left is already getting ready to battle further cuts in a country that has passed three austerity packages since the debt crisis first began. "We will present a plan in response to the debt situation," said Francisco Louá, of the Left Block.
Business leaders and Portuguese bankers welcomed the bailout, agreeing that it had become inevitable.