EU, IMF experts to discuss bailout with Portugal

EU and IMF experts will sift through the wreckage of debt-stricken Portugal’s public finances on Tuesday to work out the details of an 80-billion-euro bailout package aimed at saving it from default.

The European Commission, the European Central Bank and the International Monetary Fund experts will thrash out the technical details on the debt rescue, just as they did for fellow eurozone strugglers Greece and Ireland last year.

After talks with Portuguese officials, the country’s political parties get involved next week in what could be crucial exchanges on the debt rescue as leaders jostle for advantage ahead of early general elections on June 5.

The European Union and the IMF have offered to help Portugal but warned on Friday that in return Lisbon would have to implement more public spending cuts, tax rises and far-reaching privatisation.

Socialist Prime Minister Jose Socrates was forced to seek a bailout after parliament last month rejected the latest austerity measures proposed by his minority government, prompting his resignation.

“The goal is to have the strongest possible consensus and a clear commitment, whatever the outcome of the elections,” European Commission spokesman Cezary Lewancowicz said Sunday of the upcoming meetings.

Portuguese President called on the EU and IMF on Saturday to show flexibility on the package, worth $115 billion, given the elections ahead.

“What we need now is an interim programme so that the next government can take part in the final negotiations, because it is the next government that will implement” the deal that emerges, President Anibal Cavaco Silva said.

“It’s understandable (and) we need, let’s say, a little imagination on the part of European institutions to come up with a suitable interim programme,” he added.

His remarks drew an immediate rebuke from EU officials.

Finance Commissioner Ollie Rehn said everyone involved had to “now define a strategy which will ensure there can be a swift, cross-party agreement on a programme of fiscal adjustment and structural reforms by mid-May.”

Stressing cooperation with the government, the opposition and the presidency, Rehn said: “That’s the plan so let’s now calmly and swiftly start to work.

“Let’s not have a public dialogue every day — let’s focus on the work preparing the programme.”

Socrates’ government adopted a series of very unpopular spending cuts, tax hikes and economic reforms in an effort to get the public deficit back down to the EU norm of 3.0 percent of Gross Domestic Product.

This year, it was supposed to be reduced to 4.6 percent but in 2010, the deficit blew out to 8.6 percent of GDP, way over the 7.3 percent target, proving the last straw for the markets who demanded ever higher rates of interest from Lisbon to hand over fresh cash to cover its maturing debt.

EU finance ministers meeting in Hungary on Friday and Saturday however said the government’s plan to cut the deficit to 3.0 percent next year and 2.0 percent in 2013 would be the starting point for the recovery programme.

The talks promise to tough after Finland Finance Minister Jyrki Katainen warned that Portugal would have to come up with a “very strict” response by way of budget cuts in exchange for its debt bailout.

His stand was echoed by several of his peers as those EU countries which have stuck strictly by the EU rulebook take a harder line with their wayward colleagues after the Greek and Irish bailouts.

“If Portugal, after the elections, does not stick by the programme agreed, then the payments to Portugal will be immediately stopped,” Dutch Finance Minister Jan Kees de Jager warned on Monday.