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Barroso urges Portugal to exit bailout without safety net

Published on 03/03/2014

European Commission President Jose Manuel Barroso called Monday for Portugal to continue with fiscal austerity so it can exit its international bailout without a safety net.

“It is clear that a precautionary programme would provide more guarantees and security,” Barroso told Portuguese journalists in Brussels.

“But if Portugal is a position to go without, it would be best for everyone,” said the former Portuguese prime minister.

Current Portuguese Prime Minister Pedro Passos Coelho said last month that Portugal will stick to its austerity course after its financial bailout programme of 78 billion euros ($107 billion) ends in May.

But the country plans to wait until April to decide whether or not to request for a precautionary credit line from the EU’s new bailout fund, the European Stability Mechanism.

Such a stand-by loan would help reassure markets that the government could access financing in a pinch, and it would also open up the possibility for the European Central Bank to buy Portuguese government bonds, providing assurance to investors to buy the country’s debt.

But a precautionary programme would come with conditions attached, a sensitive political issue after three years of austerity imposed by the so-called Troika of the EU, the International Monetary Fund and the European Central Bank.

Ireland exited its bailout programme in December without a precautionary programme, and last month Portugal proved it can tap debt markets with a successful placement of 10-year bond.

While Barroso had advised Portugal in January to seek a precautionary programme, he said “the situation has evolved favourably since.”

He added the European Commission would support whatever decision taken by Portugal.

However, he noted a clean exit from the bailout would be facilitated if there was a wide political consensus to continue to improve public finances as it would improve market confidence and reduce borrowing costs.

Last month the Troika called on all Portuguese parties and citizens to back austerity measures for “a few more years”.