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EU denies Portugal in line for aid package EU denies Portugal in line for aid package
(40 minutes later)
European Commission President Jose Manuel Barroso has dismissed reports that Portugal is next in line for a financial rescue package.European Commission President Jose Manuel Barroso has dismissed reports that Portugal is next in line for a financial rescue package.
Mr Barroso said the reports were "absolutely false, completely false". The Portuguese government has made similar denials.Mr Barroso said the reports were "absolutely false, completely false". The Portuguese government has made similar denials.
Speculation that Portugal would follow the Irish Republic in asking for help has been rising this week.Speculation that Portugal would follow the Irish Republic in asking for help has been rising this week.
The euro has fallen sharply on fears the Irish debt crisis could spread. Portugal approved its 2011 budget on Friday, which aims to cut its debts.
The budget seeks to cut the country's deficit from 7.3% of economic output this year to 4.6% in 2011.
Under the measures in the budget, public spending will be cut and VAT increased to a maximum rate of 23%.
Under pressure
The euro has fallen sharply on fears that the problems experienced by the Irish Republic could spread to other countries in the eurozone.
The euro fell one cent against the dollar to $1.3265 on Friday. It has now fallen by almost four cents, or 3%, this week.The euro fell one cent against the dollar to $1.3265 on Friday. It has now fallen by almost four cents, or 3%, this week.
'Completely false' A report in the Financial Times Deutschland suggested that some eurozone countries and the European Central Bank were putting pressure on Portugal to ask for financial assistance.
A report in the Financial Times Deutschland suggested that some eurozone countries and the European Central Bank were putting pressure on the country to ask for financial assistance.
However, the Portuguese government said the reports were "completely false".However, the Portuguese government said the reports were "completely false".
The Portuguese parliament is voting later on billions of euros of proposed austerity measures. 'Obscure comments'
Germany's Finance Minister Wolfgang Schhaeuble has also dismissed reports, and comments from the country's own central bank head, that the European Union's bail-out fund could be increased.
He called such reports "completely over the top", and said there were no plans to commit more money to the fund.
"At the moment we have a rather nervous situation because there is an incredible amount of speculation, with completely obscure comments suddenly taking on meaning and unsettling markets," he said.
On Thursday, German central bank boss Axel Weber said the bail-out fund could be increased in size by a further 100bn euros ($134bn, £85bn) if needed. It currently stands at 440bn euros.
Budget cuts
This week's fall in the euro was triggered by the Irish Republic's request for financial assistance last weekend.This week's fall in the euro was triggered by the Irish Republic's request for financial assistance last weekend.
It is currently negotiating with the European Union (EU) and the International Monetary Fund (IMF) over a rescue package expected to amount to 85bn euros ($113bn; £72bn). It is currently negotiating with the European Union (EU) and the International Monetary Fund (IMF) over a rescue package expected to amount to 85bn euros.
The Republic will be the second eurozone economy to be rescued, after Greece was granted a 110bn-euro bail-out over the summer.The Republic will be the second eurozone economy to be rescued, after Greece was granted a 110bn-euro bail-out over the summer.
In order to tackle its high budget deficit, and meet conditions of any loan package, the Irish government unveiled a tough recovery plan on Wednesday, designed to save 15bn euros over the next four years.In order to tackle its high budget deficit, and meet conditions of any loan package, the Irish government unveiled a tough recovery plan on Wednesday, designed to save 15bn euros over the next four years.
Investor confidenceInvestor confidence
However, there are doubts about whether the measures will be passed when parliament votes on the budget next month.However, there are doubts about whether the measures will be passed when parliament votes on the budget next month.
All eyes in the Republic are on the result of the Donegal by-election, due later. The result of the Donegal by-election is due later, and early indications are that the outcome will cut the Irish coalition government's parliamentary majority.
The impending EU/IMF bail-out has failed to calm investors' fears that the Irish debt crisis could spread to other countries with high budget deficits, particularly Portugal and Spain. The proposed cuts and the impending EU/IMF bail-out have failed to calm investors' fears that the Irish debt crisis could spread to other countries with high budget deficits, particularly Portugal and Spain.
Government bond yields - an important indicator of investor confidence - have also risen this week, but were virtually unchanged on Friday. As well as a weakening euro, government bond yields in the Republic, Portugal and Spain have risen this week, and edged higher again on Friday.
Portugal will vote later on its own austerity budget, which outlines measures to cut the country's deficit from 7.3% of economic output this year to 4.6% in 2011. Increasing bond yields reflect waning confidence in a government's ability to repay its debts.
It proposes public spending cuts and raising VAT - measures that have proved very unpopular with voters.