Portugal seals the deal on €78bn EU-IMF bailout

PORTUGAL’S CARETAKER GOVERNMENT has announced it has signed off on a €78bn bailout deal to borrow funds from the European Commission, European Central Bank and International Monetary Fund – becoming the third Eurozone country to find itself relying on foreign assistance.

In a televised address last night, outgoing prime minister Jose Socrates announced that his caretaker cabinet had reached final agreement with the three lenders – the so-called ‘troika’ – agreeing a package that “defends Portugal”.

Officials had begun working on the deal in mid-April, and concluded exactly four weeks after Socrates’ finance minister Fernando Teixeira dos Santos admitted that the cost of borrowing had become too high for Portugal.

Final discussions on the deal had included talks on deadlines for cutting the country’s budget deficit, with the end of 2013 set as the deadline by which the country’s deficit must lie within the EU-sanctioned limit of 3 per cent of its GDP.

That deal is seen as a victory on Portugal’s part, given its previous aims to have the deficit at 2 per cent of GDP by that time.

Socrates said concessions like that one were a sign that the EU and IMF recognised that Portugal’s circumstances were not as severe as they were in Ireland or Greece.

“Knowing other assistance programmes, Portugal can feel reassured,” the FT quotes him as saying – implying that his team may have won better terms for the borrowing than either of the other two Eurozone basket cases.

Like Ireland’s, though, a significant part of Portugal’s funding has been ringfenced for the country’s banking system.

While leaders of the country’s opposition parties have yet to publicly back the borrowing, it is thought that they have already given their support to it; it was reported yesterday that their support would be vital to securing the deal, given that general elections are set for June 5.

Socrates’ Socialist Party government remains in power on an interim basis ahead of those elections, having lost outright power when a package of budget cutbacks – which had been introduced specifically to avoid needing a bailout – was voted down on March 23.

Bloomberg notes that the announcement came on the day that the so-called ‘spread’ between the cost of borrowing to Portugal and Germany reached 6.48 per cent – the highest it has been in the history of the Eurozone.

The interest rate on the European elements of the bailout loans will be decided at a meeting of EU ministers on May 16 – which could now see a renewed push from Ireland and Greece for more relaxed terms on their own loans.