Gödöllõ, 01/03/2011 (Agence Europe) - On Friday 8 April 2011, the EU27 finance minsiters discussed the official request for international aid lodged by Portugal the previous evening (see EUROPE 10354) and gave the European Commission a negotiating mandate for talks with the Portuguese authorities in conjunction with the European Central Bank and the International Monetary Fund to agree on an economic adjustment programme in return for financial aid. An ambitious programme of nearly €80 billion euros is being discussed, based on the fourth batch of austerity measures that brought down the Portuguese minority government recently. Additional cuts will also be required, however. The programme will be negotiated with the caretaker government ahead of the general elections on 5 June and will, therefore, require the support of Portuguese political parties across the board. The aim is to agree on the deal ahead of the ECOFIN Council of mid-May 2011 so that Portugal can meet its financial commitments in mid-June.
The chair of the Eurogroup, Jean-Claude Juncker, said that the finance minsters had welcomed the request from Portugal that had been lodged the day before. He said that the Portuguese austerity programme would take a three-pronged approach of budget consolidation, structural reforms to encourage economic growth and competitiveness (making the labour market more flexible and encouraging innovation) while guaranteeing the Portuguese population's social and economic situation, along with measures to ensure liquidity and solvency in the Portuguese financial industry. The Finnish finance minister, Jyrki Katainen, said the Portuguese austerity programme would have to be tougher than the most recent round of measures unveiled by the socialist government of José Sócrates at the recent eurozone summit (see EUROPE 10334).
EU Economic and Monetary Affairs Commissioner Olli Rehn said that preparations would start immediately as account books would be opened to see exactly how much financial aid and what other measures would be needed. A Commission/ECB/IMF fact-finding mission is expected to arrive in Lisbon next week. Rehn said it would be a three-year programme and the financial aid might reach €80 billion. On his arrival in Gödöllõ, Belgium's finance minister, Didier Reynders, said that €80 to €85 billion seemed a reasonable amount.
Time is pressing because Portugal has to honour great swathes of its debt in the first fortnight of June 2011 and the sovereign debt markets are virtually closed to it (because of the high interest rates they are demanding). Rehn said that Portugal would be able to meet its payments in April and May but June would be more challenging. The financial aid negotiators and the strings attached will therefore have to be negotiated with the caretaker government and the opposition, headed by the social democratic party (PSD), expected to win the June general elections, according to opinion polls. Portuguese finance minister Fernando Teixeira dos Santos said that commitment from the whole country was needed and not only the government because it is only a caretaker government. The day before, PSD leader Pedro Passos Coelho said he would be making a positive contribution to the talks. In a statement, EU finance ministers urge all political parties in Portugal to rapidly reach agreement on a programme and to form a new government after the upcoming elections that is able to pass and apply budget consolidation and structural reform measures. Juncker pointed out that the main political parties in the country had pledged to respect the national public deficit reduction targets of 4.6% in 2011, 3% in 2012 and 2% in 2013.
The president of the ECB, Jean-Claude Trichet, rejects the idea that the bank has been pressurising the Portuguese banks to stop them investing in any more Portuguese bonds, saying that the Eurosystem had its own rules and had not forced Portuguese banks or the Portuguese government to do anything at all. Faced with a downgrading of their credit rating, major Portuguese banks recently rang the alarm bell by refusing to buy any more treasury bonds, which added further complications to the saga of refinancing the country's debt.
Spread of the crisis. Is the crisis likely to spread across the eurozone to Spain, now that a third eurozone country is being bailed out? Spanish finance minister Elena Salgado says that any bailout of Spain was totally out of the question because Madrid is doing well in terms of cutting its deficits and its economy is more diversified and serious structural reforms are being carried out. Spanish banks only hold €6 billion in Portuguese bonds and there is no reason why their investments in Portugal should be affected by the country's request for aid, she added. The director of the European EFSF bailout fund, Klaus Regling, said that the money markets had reacted very positively to Portugal's request for aid. The cost of rolling over Spain's debt have not been affected and have even dropped by 2% since the start of the year, he explained. Once the Portuguese aid programme has been approved, the EFSF says it can provide the first batch of finance within ten days. (M.B./transl.fl)