Portugal's caretaker government has decided to seek financial aid from the European Union after months of what many economists said was a refusal of lawmakers to acknowledge economic reality.
A nation of 10.5 million people, it becomes the third eurozone country after Greece and Ireland to seek a bailout.
The request is likely to dominate discussions by EU finance ministers meeting in Budapest today.
The move comes as EU officials work to prevent financial market contagion from spreading beyond Portugal to affect larger economies such as Spain, which has undertaken major economic reforms and a banking cleanup to stay out of danger.
The Portuguese government of Prime Minister Jose Socrates collapsed two weeks ago after his attempts to rein in Portugal's budget deficit were rejected in parliament. Since then, the political crisis has pushed up Lisbon's borrowing costs to record levels.
Socrates, who is serving as caretaker prime minister until elections in early June, announced late on April 6 that his government had bowed to the inevitable.
"My obligation and my responsibility is to think about the national interest," he said. "The Portuguese government decided today to request to the European Commission an application for financial assistance to ensure the financing conditions in our country, our financial system and our economy, and we did so regarding to the constitutional limitations of a management government."
The bailout request is an abrupt turnaround for Socrates, who had resisted the idea for months. But now, Socrates is warning that there is no other option except a bailout package from the European Union and international institutions like the International Monetary Fund.
Socrates also warns that it will be necessary for Portugal to implement the kind of tough austerity measures that he was unable to push through parliament last month.
"This is the moment to assume the responsibilities towards the country," he said. "Everyone knows how I regret that this decision was inevitable. The Portuguese know that I struggled for another solution in the national interest. I tried with utmost determination that the negotiation of this request for help has the lowest cost possible."
Eurozone officials say Lisbon is likely to need between 60 billion and 80 billion euros ($86 billion-$114 billion) in European and International Monetary Fund loans during the next three years.
But any assistance will be subject to strict conditions. How quickly a deal on those conditions can be negotiated between Lisbon and Brussels at the start of Portugal's election campaign is unclear.
EU officials have said negotiations could move quickly, but emergency loans are normally only disbursed once there is a signed agreement with a fully empowered government.
Portugal's leader of the opposition, Pedro Passos-Coelho, also backed the caretaker government's move.
"[This] request for help, which has been made by the government and announced by the prime minister, should not be seen by the nation as the end of the line or as a desperate act," Passos-Coelho said.
"It should be seen as the first step in the way of not hiding reality, confronting our problems with dignity, and enabling us to find a way towards better democracy, which is through the elections, which in turn can enable us to trust in the future with external institutions and the Portuguese people can find a bigger and more trustworthy future."
The European Commission's top economic official, Olli Rehn, welcomed the Portuguese decision, saying it was in the interest of the 17-nation single currency area as a whole.
And German Deputy Foreign Minister Werner Hoyer told Reuters that Portugal's decision had averted risks to the eurozone.
But attention will inevitably turn now to debt-laden Spain, which has implemented tough austerity measures in a bid to reassure markets.
Spain's Finance Minister Elena Salgado insists Madrid will not be the next to go cap in hand for EU funds.
"Spain is not at risk at all," she told Spanish National Radio today. Spain's economy was "distinct" from Portugal's, she said, as it is "larger, more diversified, and more productive."
compiled from agency reports