Home News EU, IMF start tough talks with Portugal on bailout

EU, IMF start tough talks with Portugal on bailout

Published on 17/04/2011

European and IMF officials kick off tough talks Monday with Portuguese authorities on the scale and the modalities of a massive international bailout expected to involve scores of billions of euros.

The negotiations on the sum and payback conditions follow an evaluation mission last week to Lisbon by the European Commission, the European Central Bank and the International Monetary Fund.

Portugal goes to early polls on June 5. The government of Prime Minister Jose Socrates government fell last month when parliament rejected its latest austerity plan, forcing Lisbon to bow to market pressure and seek an EU-IMF bailout.

The talks are supposed to agree a programme of tough austerity measures by mid-May for the political parties to agree on before the polls take place.

European Commission head Jose Manuel Barroso, a former Portuguese prime minister, has stressed that European Union and IMF aid, expected to total 80 billion euros ($116 billion), “will be a medium-term programme with strict conditions.”

The negotiations could last a week, a spokesman for the European Commission in Portugal told AFP.

The European Commission delegation will be headed by German Juergen Kroeger while his compatriot Rasmus Rueffer will lead the European Central Bank team.

The IMF side will be headed by Dane Poul Thomsen, who was involved in the Greek bailout package a year ago while the Portuguese team will be co-headed by Finance Minister Fernando Teixeira dos Santos and Pedro Silva Pereira, the spokesman of the caretaker goverment.

The EU and the IMF have each warned that Lisbon will have to implement more public spending cuts, tax rises and far-reaching privatisation to secure its lifeline.

On Tuesday, the visiting teams will hold talks with employers’ associations and labour unions.

The debt rescue, finally agreed to after months of agonising efforts to avoid having to call for help, is hugely controversial in Portugal where many view it as a national humiliation.

Socrates’ government had 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 by 2012.

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. Portugal also has a total debt of 159.5 billion euros.

The country, among the poorest in the European Union, has to repay some 5.0 billion euros in debt by June 15 and most analysts believe it must have the EU-IMF rescue loans agreed by then if it is to make the payment and so avoid default.

That proved to be the last straw for markets demanding ever higher rates of interest from Lisbon to hand over fresh cash to cover its maturing debt.

The Socialist government and the opposition held discreet talks last week to hammer out a compromise on the thorny issue, “irrespective of the outcome of the elections,” according to government spokesman Silva Pereira.

Pedro Passos Coelho, the head of the centre-right opposition which is tipped in surveys as the likely winners of the election, has also pledged his backing to government efforts to tackle the crisis and set things in order.