Portugal woes complicate EU debt crisis summit

A political crisis in Portugal that has forced the resignation of its prime minister dominated the start of an EU summit on Thursday, further complicating efforts to solve the eurozone's debt problems.
Prime Minister Jose Socrates quit on Wednesday after parliament rejected new austerity measures that his government unveiled to avoid being forced to seek EU/IMF financial assistance, as euro members Greece and Ireland did last year.
He is the second eurozone leader to become a victim of the rolling sovereign debt crisis after Ireland's prime minister was booted out of office last month.
Despite stepping down, Socrates came to the two-day summit. He remains adamantly opposed to requesting aid and has made it clear he intends to hold that line, at least until a new Portuguese government is formed, probably after early elections in about two months' time.
"The government will continue to fight against the possibility of resorting to foreign aid," cabinet minister Pedro Silva Pereira said in Lisbon. The main centre-right opposition leader, Pedro Passos Coelho, who hopes to oust Socrates' Socialists, said in Brussels he hoped that Portugal would avoid a bailout.
The fall of the government prompted Fitch to cut Portugal's credit rating by two notches to A-, saying risks to the country's financing had risen after parliament failed to pass fiscal consolidation measures. The ratings agency warned further downgrades are likely in the next three to six months in the absence of a "timely and credible" EU/IMF support programme.
The Portuguese upheaval underscored political obstacles the single currency bloc faces in solving a debt crisis that has deepened over the past year.
Only a few days ago, the two-day summit had been expected to deliver a "comprehensive package" of new measures that would reassure financial markets, but now leaders have been thrown onto the defensive and could struggle to show unity and resolve.
Senior eurozone officials said Portugal was likely to need 60-80 billion euros in assistance from the EU rescue fund and the International Monetary Fund, but talks with Lisbon had not begun and would have to wait until a new government was formed.
Portuguese benchmark 10-year bond yields hit new highs on Thursday, climbing to 7.90 percent, far above levels that economists say would allow Lisbon to service its debt on a sustainable basis. Lisbon needs to refinance about 4.5 billion euros of debt in April and a similar amount in June, which may prove a trigger for finally making the request for aid.