Brussels, 07/04/2011 (Agence Europe) - The caretaker Portuguese government made an official request for international financial aid on Thursday 7 April. It admitted the evening beforehand that aid would have to be sought despite fighting off such a move for months. Questions are being asked about whether a caretaker government can negotiate an austerity package that will be demanded in return for some €60 to €90 billion in aid.
Pedro Silva Pereira, the presidency minister in Portugal, said the Portuguese government had informed the European Commission about its plan to formally request financial aid, as stated by the Portuguese prime minister and the government would be making the said request in writing that same day. Serious amounts of debt will need to be rolled over before the summit but interest rates currently demanded on the markets are prohibitive, too high to allow the state to roll over its loans after the country was downgraded recently and the major Portuguese banks refused to invest in many more Portuguese bonds and gilts (see EUROPE 10353 and 10350).
The European institutions plan to move as fast as possible to provide the aid, the third such package in the eurozone after the bailouts of Greece and Ireland last year. Several funds were set up in 2010 and are operational, like the European Financial Security Mechanism (EFSM) of €60 billion and the intergovernmental EFSF of up to €250bn. Further aid might be provided by the International Monetary Fund. The official request submitted to the Commission will be examined by Eurogroup and the ECOFIN Council on Friday 8 April at its meeting on the outskirts of Budapest, where the EU27 finance ministers and central bankers are meeting with a high-ranking member of the IMF. The Hungarian financial policy minister, András Kármán, promised that the Hungarian Presidency would allow all the time needed for the talks about Portugal.
If the finance ministers believe that aid is needed to protect the stability of the eurozone, they will agree to the request and send a fact-finding mission to Portugal, comprising representatives of the European Commission, the European Central Bank and the IMF to assess Portugal's financial needs. Like any other financial aid package, it will come with strings attached and the mission will examine with the Portuguese government the likely content of an economic adjustment programme to be introduced over the coming years in return for the cash. This process may be quite speedy because a fact-finding mission was in Lisbon a few weeks ago to help draw up the fourth batch of austerity measures (over which the Portuguese parliament issued a vote of no confidence and forced the government to resign). Kármán said the most recent batch of measures (the rejected measures) would be a good basis for an economic adjustment programme. It is the member states that have the final say in the total amount of aid to be provided and the conditions attached.
Late last month, the chair of Eurogroup, Jean-Claude Juncker, suggested that €75bn would be a suitable amount for Portugal. Portuguese newspaper Diario Economico suggests up to €90bn. The interest rate on the loans will be not be decided until the cash is actually raised on the money markets.
There are questions about the ability of the caretaker government in Portugal to negotiate the austerity package that will be demanded in return for financial aid and this is different from the Greek and Irish situation. A spokesperson for EU Economic and Monetary Affairs Commissioner Olli Rehn said that the Commission assumed that when the Portuguese government enters negotiations, it would have the power to do so. It is hard to say at the present which government will actually do the negotiations. The caretaker government, formally backed by the opposition, or the government emerging from the general elections on 5 June 2011? The leading opposition party, the Social Democrats (PSD), support the request for aid by the Socialist government under José Sócrates and agree with the budget deficit targets of reaching 4.6% in 2011 and 3% in 2013. At their meeting in Hungary, EU finance ministers may well have to be creative when it comes to the form of aid supplies, if it needs to be supplied in the immediate term.
After a meeting of the ECB on Thursday (see separate article), Jean-Claude Trichet said that the bank had encouraged the Portuguese government to apply for aid. The Spanish finance minister, Elena Salgado, said there was no danger of Spain following the Portuguese example. The day before, Rehn said the Portuguese government's decision to apply for aid was responsible and would be of benefit to the economic stability of Portugal and Europe as a whole. The president of the European Commission, José Manuel Durão Barroso, said that this request will be processed “in the swiftest possible manner”, according to the rules applicable. He reaffirmed his confidence in Portugal's capacity “to overcome the present difficulties, with the solidarity of its partners”. (M.B./transl.fl)