Brussels, 04/05/2011 (Agence Europe) - On Wednesday 4 May, the main Portuguese opposition parties were asked to support the strict austerity programme required of the country in order to receive financial aid. On Tuesday evening, the outgoing Portuguese government said it had reached agreement on the aid package with representatives of the European Commission, the European Central Bank and the International Monetary Fund, but support from the opposition parties is required by the potential creditors, anxious to ensure that the economic adjustment programme will actually be implemented, no matter who wins the general elections on Sunday 5 June. The details of the €78 billion aid package (over three years) and the structural reform strings attached will be officially unveiled on Thursday 5 May. No details have yet leaked out about the controversial question of the interest rate to be charged on the loans. The clock is ticking fast because the Eurogroup is due to endorse the aid formally and unanimously on Monday 16 May, assuming the Eurogroup governments manage to reach agreement by then, due to opposition in Finland. Portugal will need an initial tranche of aid, some 5 billion euros worth, mid-way through June 2011, to honour its financial commitments.
Repeating the statements made by the ECOFIN Council on 8 April, a European Commission spokesperson said that the financial aid deal for Portugal would need the backing of the big political parties in the country. Pointing out that the agreement would need to be fully and completely implemented, the spokesperson said that the country's future creditors were already in talks with the country's two biggest opposition parties, the social democratic party (PSD) and the social and democratic party (CDS-PP).
Pedro Passos Coelho, the leader of the centre right social democratic party, which leads the way in the polls at the moment, said on Wednesday that his party would not allow Portugal to become bankrupt, but said the party's final decision about the financial aid programme would not be made until a later day, probably during a trip to London on Thursday. AFP reports that he has said that the official letter of the agreement that the party might sign would set out its understanding of the details of the agreement. The CDS-PP leader, Paulo Portas, merely pledged to comply with the patriotic duty to make a realistic assessment of the aid package, according to reports from Portuguese press agency Lusa.
“A good deal”. On Tuesday evening, outgoing Socialist prime minister José Sócrates told the country that a deal had been reached with the Commission, the ECB and the IMF on financial aid for Portugal and an austerity package. He said a “good deal” had been reached, that worked in the national interest and showed that the international institutions recognised that the situation was different in Portugal from other countries (like Greece and Ireland, which have also received financial aid). He made no attempt to hide the fact that great effort would be required.
Sócrates said that Portugal had been granted an extra year to bring its public deficit back below the 3% of GDP cut-off point. The EU statistical office Eurostat has set Portugal's deficit at 9,1% for 2010, and the country will be expected to reduce it to 5.9% in 2011, 4.5% in 2012 and 3% in 2013. Before it made the official request for aid, Portugal had pledged to cut the deficit to 4.6% in 2011 and 3% in 2012. Ireland has also been granted an extra year to meet the Stability and Growth Pact 3% criterion (2015 rather than 2014).
The Portuguese prime minister said the austerity programme did not include any cut in the minimum wage or cuts in the civil service - measures introduced by both Greece and Ireland. Civil servants and pensioners will continue to receive their Christmas bonuses and extra month's pay over the summer holidays.
Portuguese newspaper Económico, which published details of the draft deal on Wednesday, sets out the austerity measures required of Portugal, like slashing €500 million from healthcare spending, cutting the number of civil servants by 8,000 posts a year, cutting overtime pay, restricting unemployment benefit to 18 months, cutting retirement pensions of over €1,500 a month, postponing big infrastructure programmes, increasing tax income, increasing direct taxation (cutting tax breaks for companies and individuals and increasing property taxes), increasing indirect taxation (VAT and tobacco duty), vast privatisation (of the national airline, TAP, and state energy companies EDP and REN, for example), along with structural reforms like cutting “golden shares” in state enterprises, increasing flexibility on the labour market and bailing out and reforming banking (upper limit of €12 billion here).
Interest rate. No details have leaked out about the interest rate and pay-back time for the loans to Portugal. Ireland and Greece are monitoring developments very closely because Ireland wants the same interest rate reduction granted to Greece in March 2011 (a 1% reduction in the interest rate and more time to pay the loan back - a further three years (seven and a half in total). Germany and France are demanding that Ireland increases its corporate tax rate. Greece is calling for a further extension of the time to reimburse its loan. (M.B./transl.fl)