Portugal's Debt

By EMESE BARTHA And PATRICIA KOWSMANN FOR DOWJONES AND WSJ

FRANKFURT—Some European officials are quietly discussing contingencies for what might be a Portuguese request for financial aid as early as next month, when the highly indebted country begins facing large-scale debt redemptions.

Financial pressure on the country's treasury is increasing, a topic that is likely to come up at the March 11 and March 24 meetings of European Union leaders, according to people familiar with the discussions.

"The feeling is that it can't go without a bailout beyond March or April at the latest and is already under pressure by countries like Germany to ask for help, to get it so the situation in the euro zone becomes more clear," a senior euro-zone government official said. Some Portuguese officials are privately considering the possibility, this official said.

Portugal has raised €4.75 billion ($6.5 billion) via bond sales so far this year. But it now faces redemptions totaling €3.848 billion in maturing Treasury bills in March, according to data from Portugal's Treasury and Government Debt Agency. It then has €4.342 billion in bond redemptions in April, followed by €4.933 billion to be paid out in June.

That borrowing volume will come at a stiff price. Ten-year Portuguese yields Tuesday were hovering near multiyear highs of 7.344%, well above the 7% level at which debt-servicing costs are deemed unsustainable.

The Portuguese debt agency skipped a time window for a bond auction this week, probably because of high costs. At these levels, Portugal is paying a painful 4.18 percentage points more than the German government on equivalent 10-year bonds.

Another senior European official said many around the EU consider it only a matter of time before Portugal asks for a bailout package similar to the deals struck with Greece and Ireland last year.

Portugal's already detailed reform plans mean much of the work needed to put a package together has already been done. That means the European Commission—the EU's executive arm—could move quickly once a request comes in, the official said.

Athanasios Orphanides, a member of the European Central Bank's governing council, said in an interview over the weekend that Portugal's case is "particularly urgent." He warned that failure at next month's summits to come up with convincing changes to fiscal policy and competitiveness in the bloc could destabilize the 17-country euro zone.

Officially, the Portuguese government remains resolute in declining the need for outside help to extricate the country from its fiscal straits.

That could be at least in part due to national politics. Portugal's largest opposition party, the center-right Social Democrats, has raised the possibility it could put forward a censure motion against Prime Minister José Socrates' minority government.

But market watchers are betting otherwise, believing that Portugal is approaching the end game in its struggle with fiscal deficits.

"They will seek help," said Jan von Gerich, a senior analyst at Nordea in Helsinki, adding that the timing is the more uncertain factor than whether or not the country will ask for assistance.

"I don't think they can manage unless the March summits come up with another idea," he said, adding that he expects a decision on Portugal's bailout before its April bond redemption.

—Laurence Norman in Brussels contributed to this article