Europe offered Portugal Friday an 80-billion-euro ($115 billion) bailout, but set tough conditions as it bids to draw a line under a destabilising debt crisis.
The joint EU-IMF loans, following bailout rescues of Greece and Ireland last year, will be conditional on more public spending cuts, tax rises and far-reaching privatisations — negotiated with Portuguese politicians facing an angry, fearful electorate around June 5 polls.
This third bailout of a eurozone nation within a year will “likely” amount to 80 billion euros ($115 billion), EU finance commissioner Olli Rehn said, although the Portuguese finance minister stressed that his government could not be expected to sell it to its electorate.
The decision to act was taken after outgoing Portuguese premier Jose Socrates threw in the towel on the eve of scheduled talks at a Hungarian castle and formally requested financial aid.
Like Dublin and Athens beforehand the bailout was brought on by skyrocketing borrowing costs, with the Lisbon government collapsing last month after parliament rejected its attempts to impose stringent austerity measures to rein in its public deficit.
The decision on Portugal also comes as the EU is locked in controversial negotiations over a permanent rescue mechanism for wayward eurozone states.
The aim is to set down binding rules once and for all, and contain debt contagion that some believe now threatens Spain.
One-third funded by the International Monetary Fund, pending confirmation from Washington, the deal with Lisbon should be conditional on “an ambitious privatisation programme,” as well as labour market reform and “measures to maintain the liquidity and solvency of the financial sector,” Rehn said.
It will require “strict conditionality negotiated with the Portuguese authorities, duly involving the main political parties,” added eurozone father figure and Luxembourg Prime Minister Jean-Claude Juncker.
A “cross-party agreement” is to be “adopted by mid-May and implemented swiftly after the formation of a new government” in June.
European Central Bank head Jean-Claude Trichet said it was “essential” that structural budgetary adjustment lay at the heart of the plan, and that the “hard work” should “begin immediately.”
Rehn later told Portugal’s squabbling politicians to show “responsibility” and agree economic reforms, after Portugal’s Fernando Teixeira dos Santos said it was not his outgoing government’s job to sell the deal to voters.
“It’s not for the government to negotiate with the opposition,” dos Santos said.
“It’s not the government’s job to promote this negotiation” to the Portuguese people.
Eurosceoptic English MEP Nigel Farage said Brussels had “made it plain as a pikestaff what they expect from the Portuguese people.”
“You can vote for any political party you like — as long as it does what it is told,” he claimed.
Belgium’s Reynders said the politics of the bailout “complicates things because we are no longer negotiating with a government, but one going into elections.”
Swedish finance minister Anders Borg said the new bailout was not yet a foregone conclusion.
However, the EU has money in a fund raised on the back of national contributions to the bloc’s annual budget that was used for Ireland and is again, according to Rehn, first in line to be dipped into here.
Friday’s decision came after Spain was again forced to insist it could ride out its own debt problems, despite stubborn high unemployment and a stagnant economy struggling to climb out from under a property market crash.
Its Finance Minister Elena Salgado said it was “completely out of the question” that Madrid should follow suit.
Despite successive credit-rating downgrades pushing Portugal into a replay of the Greek and Irish crises, the EU also sees the three bailouts as a freak constellation of circumstances: dodgy data in Greece, unregulated banks too big for Ireland and out-of-date economic modelling in Portugal.
Lisbon must repay some 4.2 billion euros of debt by April 15 and another 4.9 billion euros by June 15.