LISBON, Portugal — Europe struggled to contain its growing debt crisis Friday, as Portugal took radical austerity measures to fend off the speculative trades that are pushing it toward a bailout and Ireland negotiated the final terms on its own imminent rescue.
With Portugal and Spain's insistence that they will not seek help echoing similar declarations from Ireland and Greece before them, an eery sense of deja-vu struck investors and Europe braced for what seemed to have become inevitable — more expensive bailouts.
The Portuguese Parliament approved a debt-reducing package of unpopular measures, including tax hikes and pay and welfare cuts, similar to those introduced in other European countries scrambling to restore market confidence in their economies.
While that move helped avoid a sharper deterioration in bond markets, the sense among analysts was that it was just buying time. Yields remained near record highs, stocks slumped across the board and the 16-nation euro lost another 0.8 percent on the day to trade at $1.3241, just off two-month lows.
Portugal's high debt and low growth have alarmed investors, but the government insists it doesn't require an international rescue — a line ominously reminiscent of statements by Greece and Ireland before their rescues.
Analysts say markets need more reassurance from EU leaders that the rot can be stopped in Portugal before possibly spreading to Spain, the continent's fourth-largest economy — a scenario that would threaten the 16-nation euro currency itself.
Portugal's Finance Minister Fernando Teixeira dos Santos said that some in Europe didn't agree with his government's refusal to consider a bailout.
"There are those among our (European Union) partners who think the best way to ensure the euro's stability is to push and force those countries which are most in the spotlight to accept assistance," he was quoted as saying in an interview with daily Jornal de Noticias published Friday.
Teixeira dos Santos did not specify whose views he was referring to, but the European Commission, the European Central Bank and the German government all denied they were pressuring Portugal to take financial aid.
Prime Minister Jose Socrates said in a brief statement after Parliament approved the government's 2011 spending plan that the country had "no alternative at all" to the belt-tightening policy.
"We must make this effort," Socrates said. He did not take questions.
But the financial crisis is unlikely to abate any time soon. Finance Minister Teixeira dos Santos said he reckoned Portugal, where a major strike this week shut down many public services, has six months to show markets it is able to bring its spending under control.
Greece, which accepted a bailout six months ago, and Ireland are still far from being able to return to international debt markets.
The Athens government has had to draw up even tougher reforms for 2011 to keep receiving international loans worth €110 billion ($150 billion), despite public outrage and a planned Dec. 15 general strike.
Dublin on Friday continued negotiating the final details of an EU-IMF rescue package, which is expected to be presented within days. Uncertainty that the country's austerity measures will survive political turmoil kept pressure on the country. Bonds yields rose to a new euro-era high of 9.19 percent, up from 9.02 percent the day before, as investors dumped its debt.
Markets have been jaded by policymakers' lack of coherence and determination in their response to the debt crisis. So when Spanish Prime Minister Jose Luis Rodriguez Zapatero on Friday declared that there is "absolutely" no chance Spain will seek a bailout, the statement failed to instill much confidence.
The yield on Spain's 10-year bonds hovered around 5.2 after touching 5.3 percent earlier. By contrast, Germany's 10-year bond yield — a benchmark of lending safety — stood at only 2.7 percent.
Though Portugal's banks are said to be sound and the country's budget deficit last year was lower than those of Greece, Ireland and Spain, its high debt load compared to its gross domestic product and its meager growth of around 1 percent a year over the past decade have made it especially vulnerable to market jitters.
A record of poor financial management and grim prospects for growth — in part also due to the austerity package — have led investors to demand higher returns for risking their money on Portugal.
That contributed to a rise in the yield on Portugal's 10-year bonds to a euro-era record of 7.045 percent Friday before it fell back slightly.
Socrates, the prime minister, said Portugal is on track to lower its budget deficit to 7.3 percent of GDP this year — which would be lower than those of Britain, France and Spain — from 9.6 percent last year, the fourth highest in the eurozone.
For 2011, the government hopes to cut the deficit to 4.6 percent, below the EU average.
Portugal faces broader, long-term problems, however. Labor laws that make it hard to fire workers, industry's reluctance to risk adopting more modern work practices, a congested legal system and education levels among the lowest in Europe have cooled the interest of foreign investors and will be hard to correct by a government already seeking to recover voters' trust.Comment on this story
The austerity measures carried a political cost for the minority center-left Socialist government which managed to pass the plan only after negotiating its content with the main opposition party. All other parties voted against it, saying it would worsen hardship in a country which is among the continent's poorest and where the average wage is around €800 a month.
The Organization for Economic Cooperation and Development predicts the Portuguese economy will contract 0.2 percent next year after growing around 1 percent this year. The unemployment rate is 10.6 percent, just above the eurozone average of 10.1 percent.
David Rising in Berlin, Gabriele Steinhauser in Brussels, and Ciaran Giles in Madrid contributed to this report.