Brussels, 17/05/2011 (Agence Europe) - On Monday 16 May 2011, the Eurogroup unanimously endorsed the three-year austerity programme that Portugal will be required to implement in exchange for international aid in the form of loans of €78 billion (see EUROPE 10375). Eurogroup chair Jean-Claude Juncker said the eurozone finance ministers had unanimously agreed to help Portugal. EU Economic and Monetary Affairs Commissioner Olli Rehn welcomed the fact that Portugal's main political parties had backed the austerity package, pointing out the importance of implementing the reforms immediately after the 5 June 2011 general elections. Europe wants to ensure that the measures are properly introduced irrespective of which party wins the elections.
The eurozone finance ministers issued a statement pointing out that the Portuguese government would encourage private investors to voluntarily maintain their overall level of investment in Portugal. This was a condition placed by Finland (and backed by other countries) in return for its participation in the Portuguese aid package. If any further Portuguese bailout is required, Finland will call for guarantees that its loans will be repaid.
Portuguese Finance Minister Fernando Teixeira dos Santos said that later this month or at the start of June, Portugal will receive the first batch of aid, of slightly over €18 billion. A third of the international aid will be handed over this year. Two-thirds of the total aid will come from the EU (from the intergovernmental EFSF bailout fund and the EU's EFSM bailout fund), and the remaining third from the IMF. The managing director of the EFSF, Klaus Regling, said the EFSF would issue three batches of AAA-graded bonds this year, two of them before the summer break. Teixeira dos Santos said the average interest rate on the Portuguese loans would be 5.1% and the average maturity would be seven and a half years. Olli Rehn said the interest rate on the EU loans would be above 5.5% but clearly below 6%. Europe is using the IMF's formula of the market rate plus a 3% risk premium for loans of more than three years.
The ministers say the Portuguese loans will ensure financial stability across the eurozone and the EU27, pointing out that across the board, political parties have called for rigorous and rapid implementation of the three-pronged structural adjustment programme comprising: - budget consolidation (to cut the deficit to 5.9% of GDP this year, 4.5% of GDP next year and 3% in 2013) by slashing healthcare; - structural reforms (to make the labour market more flexible and sell off state assets); - dealing with the financial sector (by bailing out banks to reduce their debts). The Commission says Portugal will be in recession this year (-2.2%) and next (-1.8%) and its debt, as a proportion of GDP, will reach 101.7% in 2011 and 107.4% in 2012. (M.B./transl.fl)