Portugal's financial agony deepened Friday, threatening to pitch Europe into a whole new round of economic turmoil over its debt crisis.

The country's borrowing costs are punishingly high, with the interest rate on its 10-year bonds holding above 7 percent for a 10th straight session Friday.

As Portugal — one of the smallest and frailest in the 17-nation eurozone — runs out of options, its leaders are pressing fellow European nations to adopt new crisis management measures at a summit next month, ahead of a euro4.5 billion ($6.13 billion) debt repayment that falls due for Portugal in April.

Yet the broad consensus in markets is that Portugal is doomed to become the third member of Europe's bailout club, after Greece and Ireland, partly because the continent's paymaster Germany doesn't want the issue to fester for much longer.

Another bailout for a eurozone member is sure to further undermine market confidence in the fiscal soundness of the single currency bloc and carry severe consequences for other vulnerable — and much bigger — countries such as Spain, Belgium and Italy.

Filipe Sila, debt manager at Portugal's Banco Carregosa, said investors have turned their backs on Portugal, frightened away by a level of risk that's deemed too great and worried they might not get their money back.

"Many political decisions are pending that could have a lot of bearing" on what happens, he said. "It's an additional risk. I think nobody is buying Portuguese debt at the moment except the European Central Bank."

The catalyst for the renewed tensions was eurozone leaders' failure at a Brussels meeting two weeks ago to come up with anything dramatic that could douse the yearlong financial firestorm, despite bold pronouncements from many that a "comprehensive package" was in the offing. Those predictions briefly calmed investors.

The most visible sign of the new heightened state of stress is in the bond markets, where Portuguese bond yields have spiked dramatically.

The spread between two-year Portuguese and German bond yields has risen by more than a percentage point this week alone, while Portugal's 10-year yield has risen three quarters of a percent to a potentially unsustainable 7.5 percent.

Portugal's borrowing costs for its three-year government bonds stands at 5.6 percent — more or less the rate the International Monetary Fund and eurozone countries charged Athens and Dublin for their loans and making a bailout look more palatable for the Portuguese.

A number of analysts think the bailout option will become more acceptable for Portugal, given that its economy is contracting once again.

"Although Portugal has a lower debt level than Greece, its high fiscal deficit and dismal growth prospects expose the country's debt dynamics to market risks," said Athanasios Vamvakidis, a strategist at Bank of America Merrill Lynch. "Beyond debt sustainability concerns, the lower IMF-EU borrowing cost should look increasingly attractive to Portugal."

But the Portuguese government, keen to keep its domestic political reputation for economic management intact, insists it doesn't want or need assistance. It says its austerity package of pay cuts and tax hikes will lower its grievous debt load and restore international faith in its economy.

It is also urging the European Union to set aside the differences between member states and quickly take some action that would ease market tensions.

"(Europe) has to do its part and respond to the scale of the problem," Portugal's minister for the Cabinet, Pedro Silva Pereira, said Thursday.

Germany, however, appears reluctant to increase the size and scope of Europe's current bailout fund unless all euro countries agree to stricter fiscal policies and Portugal bites the bullet and applies for a rescue.

Financial markets mistrust Portugal just as they did Greece and Ireland, but for different reasons. Portugal has recorded feeble growth over the past decade, forcing it to run up high debts in order to keep financing its economy.

The outlook for the future is no brighter. Portugal's central bank now predicts a double-dip recession after a slight recovery last year, when the jobless rate climbed to a record 11.1 percent.

Moody's Investor Services has warned it may cut its A1 rating on Portugal, while Standard & Poor's Ratings Services is also considering a downgrade.

Those considerations are helping push Lisbon, which also has to find almost euro5 billion ($6.8 billion) to settle outstanding debts in June, into a corner.

The prevailing view is that the March 25 summit of EU leaders will have to come up with something big and bold on how to deal with Europe's debt crisis or else face the wrath of the markets.


Pylas reported from London.