Brussels, 05/05/2011 (Agence Europe) - On Thursday 5 May, Portugal's future lenders officially unveiled the austerity programme the country will be required to introduce in return for financial aid of some €78 billion over three years (see EUROPE 10371). The main Portuguese opposition parties, which are expected to win the general elections on Sunday 5 June, have formally pledged to introduce the said measures. The aid package must now be endorsed by the Eurogroup on Monday 16 May before Portugal can be given the first tranche of aid (€5 billion) in the first half of June. All eyes are now on Finland, where the government is in the process of negotiating agreement to endorse the Portuguese aid package.
Jürgen Kröger of the European Commission said on Thursday that the Portuguese authorities and representatives of the European Commission, the International Monetary Fund and the European Central Bank had agreed on a detailed economic adjustment programme covering Portugal's main foreign, budget and structural problems. He said the package would provide €78 billion of aid, two-thirds of it provided by the European Union from the European Community's EFSM and the intergovernmental EFSF, and one third from the IMF. The austerity package would, he said, necessarily be strict and would take a three-pronged approach - “ambitious but realistic” consolidation of public finances to cut the public deficit to 5.9% of GDP this year, 4.5% in 2012 and 3% in 2013; bailing out the banks, with €12 billion earmarked for this purpose; and structural reforms to remove “rigidities” on the labour market, along with a raft of privatisations of state enterprises.
Kröger said the Portuguese austerity programme was just as severe as the Greek and Irish equivalents, but was different because the structural measures would go far deeper. He pointed out that the Portuguese government had not initially planned to reform the labour market or housing and real estate. The interest rate on the Portuguese loan will be decided by the Eurogroup. The interest rate on the Irish bailout was set at around 2% above the market rate.
In the light of the economic recession that will hit the Portuguese economy in the first two years of the aid package, the deficit reduction targets (cutting the deficit by 6% of GDP over three years) will require additional measures of the equivalent of 10% of GDP over three years, commented Poul Thomsen. Two-thirds of this would be achieved through reductions in public spending, and the remaining third by increasing tax revenues. He described the austerity programme as balanced because it protects the most vulnerable sections of society. ECB representative Rasmus Rüffer said the aid package would provide additional funding for Portuguese banks (Tier 1 capital requirements have been set at 9% by the end of this year and 10% by the end of 2012), getting the banks out of debt in a gradual and orderly manner. Speaking in Helsinki, the president of the ECB, Jean-Claude Trichet, said the programme's austerity measures would stabilise the Portuguese economy.
Pedro Passos Coelho, the leader of the centre-right social democratic party expected to win the elections, promised on Wednesday to implement the austerity programme if he comes to power. On an official visit to London, he said he was totally committed to the programme's objective of stimulating economic growth, reports Portuguese press agency Lusa. Paulo Portas, the head of the other main opposition party, CDS-PP, who was also party to the negotiations with the Commission, ECB and IMF, also backed the financial package. The Commission, ECB and IMF demanded the backing of all the main political parties in Portugal to ensure the austerity measures are introduced no matter who wins the June elections. (M.B./transl.fl)