Brussels, 24/03/2011 (Agence Europe) - On Thursday 24 and Friday 25 March the European Union is supposed to be putting a definitive end to its sovereign debt crisis (EUROPE 10343). It will ratify a mechanism for helping establish greater convergence between the different national economies, enhance European rescue funds and strengthen budgetary discipline. The crisis in Portugal, however, is upsetting the agenda and making international financial aid more likely. Europe is beginning to consider this aid openly.
Introduced as the future Portuguese prime minister in the event of early elections, the leader of the main opposition party (PSD, centre-right), Pedro Passos Coelho, expressed hope on Thursday during the meeting of European People's Party leaders in Meise, that his country would not have to be bailed out. According to Coelho, the outgoing prime minister, José Sócrates, does not have a mandate for requesting financial aid at the summit. Passos Coelho has made a vigorous appeal for a new government to be formed in an effort to re-establish confidence in the country's ability to get its public financing back on track. His party adopted a declaration in which it made a commitment to respecting the public deficit reduction objectives set out (4.6% in 2011, 3% in 2012). The national parliament rejected the fourth raft of austerity measures announced by the government at the beginning of March during the eurozone summit (EUROPE 10335) and Sócrates subsequently handed in his resignation on Wednesday evening. He warned that “this current political crisis will have extremely serious consequences on the confidence Portugal requires from the financial institutions and markets”.
Although financial aid has to be officially requested by the Portuguese authorities, other European countries are beginning to talk about the matter openly. According to Luxembourg's prime minister, Jean-Claude Juncker, the amount could be to the tune of “€75 billion”. The Swedish prime minister, Fredrik Reinfeldt, stated: “We are in a position to help Portugal, if it wants us to do so but it is too early to say.” Viktor Orbán, the Hungarian prime minister, said that when the extent of Portugal's difficulties are acknowledged, it would be better to take action as soon as possible. The German Chancellor, Angela Merkel, regretted the rejection of the austerity measures in Portugal and urged political leaders there to reaffirm their commitment to the budgetary objectives set out. Germany wants a longer European Stability Mechanism contribution period (five years), which will be set up in the middle of 2013 (EUROPE 10342).
Financial aid to Portugal would come from the EFSF, set up in May 2010, to guarantee eurozone stability and which is currently being mobilised to help Ireland. European leaders will confirm that the effective loan capacity under this instrument will be €440 billion. Nonetheless, a decision still needs to be taken on how to go about this. Doubling national guarantees appears to be the favoured method. Finland is due to elect a new government in April and does not have a mandate for giving an official position on this question. A decision for setting out the conditions for loans to Ireland was postponed because there was no agreement between Dublin and its partners on lowering interest rates.
Portugal will have to repay its creditors for the loans: €4.2 billion in April and €4.9 billion in June. Portugal will be in a recession in 2011 - 0.9%, according to the government or 1.3%, according to the national bank of Portugal. On Thursday, interest rates on Portuguese sovereign debt bonds were set for 10 years and reached a new record (7.74%), a level, which has been described as unsustainable by the Portuguese authorities themselves. (M.B/transl.fl)