Portugal aid package ‘to be finalised by May’
Austerity measures will have to be introduced as condition of bail-out.
Portugal to seek bail-out
The EU hopes to agree a package of financial loans to Portugal by mid-May, on condition that the country implements a programme of austerity measures and structural reform.
Olli Rehn, the European commissioner for economic and monetary affairs, said that the bail-out of Portugal’s troubled economy would amount to about €80 billion.
He was speaking following a meeting of eurozone finance ministers outside Budapest today (8 April), where a financial assistance package to Portugal was agreed “on strict conditionality” of a programme of measures aimed at restoring fiscal sustainability and growth.
Rehn said that officials from the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) would start assessing Portugal’s exact needs immediately. He said finance ministers hope to reach a deal on the terms of the package when they meet in Brussels on 16 May.
Click Here: cheap INTERNATIONAL jersey
That would be before Portugal’s national elections, which will take place on 5 June. Officials are negotiating with all main political parties in Portugal and Rehn said that cross-party support was “vital”. Some “final adjustments” would be possible after a new government was installed, he added.
International pressure
José Sócrates, Portugal’s acting prime minister, finally admitted that his country needed external support on Wednesday after months of pressure. He resigned in March after opposition parties voted against a package of austerity measures.
The Portuguese caretaker government had been pressing for a bridging loan until June, short of a full bail-out, but today Rehn said this was out of the question. He said that Portugal would manage its refinancing obligations in April and May but that June “would be more challenging”, by which time the bail-out package should be agreed.
“The timeline is fully sufficient to ensure the immediate refinancing needs of Portugal can be covered,” he said.
“Our goal is that we will conclude and decide on our programme in mid-May and then it takes some 10 days in practice to go the markets.”
In a statement following this morning’s meeting outside Budapest, all EU finance ministers said that the set of austerity measures already announced by the Portuguese government was “a starting point”.
They said that conditions for a bail-out would include an ambitious fiscal adjustment programme to restore fiscal sustainability, growth and competitiveness enhancing reforms including an “ambitious privatisation programme” and measures to maintain the liquidity and solvency of the financial sector.
It has not yet been decided how the financial assistance will be divided between the EU and IMF. On the EU side, it is likely that both the €440bn European Financial Stability Facility (EFSF), created by eurozone member states following the Greek crisis, and the European Commission’s smaller European Financial Stabilisation Mechanism (EFSM), which has contributions from all EU member states, will be drawn upon.
Rehn said that Portugal’s request for financial assistance, which was made official at 10pm yesterday, was a “responsible move to safeguard financial stability in Europe and help Portugal overcome its economic difficulties”.
He said the exact measures needed to ensure financial sustainability, including structural reforms, would only be known “when the books are open to us”. Representatives from the Commission, ECB and IMF are expected to start their work in Lisbon on Monday.
Budgetary objectives
Jean-Claude Juncker, the prime minister of Luxembourg who chairs the meeting of eurozone finance ministers, said he was “reassured both by the party in government and by the party in opposition, that they are sticking to the budgetary objectives which have been laid down”. This includes reducing the deficit to 4.6% in 2012 and 2% in 2013.
Jean-Claude Trichet, the president of the ECB, said he was ready to negotiate immediately with the Portuguese authorities and said “hard work” should begin straight away.
He said that Portugal needed to agree a programme that should contain “ambitious fiscal adjustment” and structural reforms, in order to “safeguard fully financial stability in Portugal and by way of consequence, in the eurozone.”
Trichet denied putting pressure on Portuguese banks to persuade the caretaker government to seek financial support.
He said: “We didn’t force the banks to do anything. We didn’t force the government or the authorities in general to do anything.”