EU to unveil Greece and Portugal bail-outs

Including the Greek and Irish bail-outs, the UK will be on the hook for a total of about ?12.5bn once the Portuguese deal is ratified. The money is only at risk if a country defaults. Britain has pledged about ?7bn to Ireland, ?4.2bn to Portugal, and ?1.3bn to Greece.

Portugal is also expected to be forced to sign up to punishing fiscal consolidation plans, despite caretaker Prime Minister Jose Socrates' claim this month that he had secured more lenient terms than Ireland and Greece. Tough reforms, such as improving labour market flexibility and recapitalising its banks, will be demanded alongside new austerity measures as a condition of the bail-out.

Portugal would now need to cut its budget deficit from 7.3pc to 5.9pc of GDP this year, compared with a previous goal of 4.6pc. The deficit will have to be cut to 4.5pc in 2012 and 3pc in 2013.

Concerns that debt woes could spread from Greece and Portugal to other countries in the eurozone prompted the European single currency to plunge to a six-week low on Friday.

"The overall prevailing theme is the European debt market mood, and the euro has been caught up in that this week," Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, said. "There's been a role reversal in the context of recent events; the short-term inclination of the markets, instead of being to sell the dollar, is to sell the euro."

A global poll of almost 1,300 investors last week by Bloomberg indicated that the market believes a sovereign default by a euro-area nation is more likely than not.

A total of 85pc said they thought that Greece would eventual default on its debt obligations, with more than half indicating that Portugal and Ireland would ultimately default as well.

Data released on Friday confirmed that Portugal had slipped into a double-dip recession, after GDP in the first quarter shrank by 0.7pc. The country's economy grew by 1.4pc last year, but it shrank by 0.6pc in the final quarter of the year. Portugal's Statistics Institute said the contraction was largely due to lower private and public spending.

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