PORTUGAL’S outgoing government and opposition parties appear to have accepted the terms of a €78 billion EU/IMF bailout which is likely to come at a lower interest rate than Ireland’s.
The rate will be decided at the next meeting of eurozone finance ministers on May 16/17, but the loan — which the Portuguese need by 15 June to repay a €6bn debt — could still be vetoed by the Finnish parliament.
The austerity measures to reduce the country’s deficit to 5.9% this year (Ireland’s target is 9.5%) are similar to those rejected by the centre right main opposition party which led to the collapse of the government last month.
Like Ireland’s package, some of the details will be left to the incoming government after the June election, to finalise. The troika involved in the negotiations — the European Commission, the European Central Bank and the IMF will hold a press conference this morning on the deal.
Finance Ministers are expected to approve an interest rate reported to be around 4.68% compared to around 5.8% for Ireland.
This is largely a result of the decision by EU leaders in March to reduce the rate from 3% to 2% charged on top of the cost the European Financial Stability Facility pays to borrow the money.
Finance Minister Michael Noonan will be hoping that this will pressurise his colleagues to cut the rate for Ireland, and bring it into line with that charged to Greece and Portugal.
However he will be wary of how he raises the issue to ensure that France does not pursue its demand that he raise the country’s corporation tax rate in exchange.
Portugal is now the third eurozone country to receive a loan from the EU/IMF with Greece being the first last year to receive €110 billion followed by Ireland last December with €85 billion of which €17.5 came from own resources.
Like Ireland, Portugal resisted taking a bailout for months and introduced a series of austerity measures. But it became inevitable as the cost of borrowing spiralled. Unlike Ireland’s crisis, Portugal’s is not essentially a banking one. Nonetheless the package is understood to include €12 billion for its banking sector.
However Portugal still has another hurdle to cross before as the Finnish parliament must approve the loan, and the eurozone needs unanimity before money can be raised by the EFSF.
The second largest party in the April elections, the True Finns say they will reject the loan. The finance minister Jyrki Katainen, who is in negotiations with all parties to form the next government, said he will respect whatever decision the parliament makes.
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