With their bonds strengthening after the announcement of a $1 trillion financial safety net for the euro zone, even the weakest states other than Greece may not need to use the net, officials and analysts say.
Countries are reluctant to apply for emergency aid partly because it would come with tough requirements to impose austerity measures, similar to those demanded in the International Monetary Fund's bailout programmes.
Here is the outlook for Portugal, Ireland and Spain, the three countries which many analysts see as the next potential "dominoes" after Greece. PORTUGAL
Finance Minister Fernando Teixeira dos Santos said in Brussels on Sunday night that it would be premature to decide whether Portugal would need to apply for emergency funds.
Commerzbank economist Ralph Solveen said, "I wouldn't say the probability of Portugal needing to apply for the safety net is high. If the ECB's bond buying is successful and it calms down the markets, I'd say it's lower than 50 percent.
"The ECB is buying bonds and the pockets of the ECB are very deep. Perhaps they will not need the bailout after all."
Moody's Investors Service last week put Portugal's Aa2 rating on a three-month review for a possible downgrade, but said that though Portugal's financing costs might rise for some time because of market pressures, it expected debt servicing to "remain very affordable in the near to medium term".
It said "the government's debt is neither unsustainable nor unbearable."
Diego Iscaro, economist at IHS Global Insight in London, said: "I don't think Portugal has liquidity problems, so the need to apply is surely below 50 percent. All depends on how this aid will materialise, but I'd say the probability is about 20 percent in a 12-month horizon."
He added, "If they choose aid at IMF terms, I think there will be a lot of opposition, especially from the people, since the economy is already performing poorly and unemployment is on the rise."
But Antonio Costa Pinto, a political scientist in Lisbon, said that if the government did apply for the safety net, its plan would probably be accepted by parliament, where the main opposition party is on the centre-right of the spectrum.
"There will be some social polarisation, but from the example of our direct agreements with the IMF in 1979 and 1983, which had very tough conditions, I don't expect too much opposition. The levels of social conflict in Portugal are relatively low."
Portugal's budget deficit is expected to drop from 9.4 percent of gross domestic product in 2009 to 8.5 percent this year and 7.9 percent in 2011, the European Commission forecast this month. Gross government debt is predicted to rise from 76.8 percent to 85.8 percent and 91.1 percent. [ID:nBRQ009230] [ID:nBRQ009831]
IRELAND
Ireland has no immediate funding problems and sees no need to use the safety net, the Finance Ministry said on Monday.
Finance Minister Brian Lenihan said his country's fiscal position was not questioned at the meeting of euro zone finance ministers on Sunday.
"There's no suggestion that any state other than Greece has funding difficulties...There were no suggestions in the meeting that Ireland has any difficulties whatsoever," Lenihan told national radio RTE, adding that he was under no pressure to draw up an early budget.
Ireland could continue borrowing at current market rates without seriously damaging its finances until the first half of 2011, according to Alan McQuaid, chief economist at Bloxham Stockbrokers.
Asked about the chances of Ireland applying for a bailout in the next 12 months, he said: "I would have it relatively low. Obviously it depends on global conditions, but I would have it relatively low, 25-30 percent."
McQuaid said there was a recognition among public sector workers that they did not want to go down the Greek route.
"I think there is an element, and you can see it here with the public service unions and union leaders, there is a recognition that you don't want to go down the step where you have to need recourse to the IMF."
Retail sales, jobless, budget and Purchasing Managers Index data last week offered signs that Ireland might be about to exit the euro zone's longest running recession.
"Last week was the best week for a long time on the Irish economy data front," Brian Devine, economist at NCB Stockbrokers, said in a note. "The worry was that financial contagion would spread and harm the recovery. The EU bailout should ensure that this does not occur."
Ireland's budget deficit is due to shrink from 14.3 percent of GDP last year to 11.7 percent this year, but edge up to 12.1 percent next year, according to the EC. Its government debt/GDP ratio is expected to rise from 64.0 percent last year to 77.3 percent this year and 87.3 percent next year.
SPAIN
Spain says it has the necessary financing and access to capital sources to avoid having to use the safety net.
"The Spanish government will not have to use this measure at all; Spain's deputy prime minister (and economy minister) Elena Salgado was very clear about that yesterday," a spokesman for the economy ministry said.
Many analysts agree. "The pressure on Spain's financing costs is not enough to trigger this aid mechanism. Portugal's situation is more compromising, but the approval of the measures dissipates the tension," said Sara Balinas from Analistas Financieras Internacionales.
The existence of the safety net should be enough to bolster markets and this, combined with fresh cuts in the budget deficit announced on Monday, should make any use of emergency funding less likely, BNP analyst Luigi Speranza said. [ID:nMDT009015]
"The fact that the money is available is having a huge impact on the market today; this in itself reduces the chances that Spain will have to tap the extra financing."
He added, "There has been considerable commitment from institutions including the ECB. Now it's really important to see how markets take it...at the moment they are taking it very well."
Prime Minister Jose Luis Rodriguez Zapatero is expected to give more details on the new deficit cuts -- which would bring the deficit to 9.3 percent of GDP in 2010 and 6.5 percent in 2011 -- when he appears before parliament on Wednesday. Last year the deficit was 11.2 percent.
Spain's debt/GDP ratio is expected to climb from 53.2 percent last year to 64.9 percent this year and 72.5 percent next year, the EC said last week, before the announcement of the new deficit targets.
Source: Reuters
