European Union finance ministers met on Friday to thrash out the terms of a multi-billion dollar loan to Portugal after the debt-laden Lisbon government formally requested a bailout.
The ministers were expected to discuss both the size of the loan and the terms of its repayment at the two-day meeting near the Hungarian capital Budapest. Around two-thirds of the cash will come from the EU while the rest will be covered by the International Monetary Fund.
Although there has been no exact figure, Belgium predicted around 80-85 billion euros would be needed by Portugal which finally succumbed to pressure for a bailout as the cost of borrowing soared.
Portugal is the third eurozone country after Greece and Ireland to request a bailout and its plight has increased speculation that Spain — the fourth largest economy of the 17 countries which use the euro single currency — will also ask for help.
Olli Rehn, the European Union’s finance commissioner, confirmed that the aid request had been received from Portugal as he arrived at the talks in Godollo.
“We have received the formal request of the Portuguese government for financial assistance from the European Union and the IMF. We received this formal request last night,” Rehn told reporters.
“I welcome this responsible move for the sake of financial stability.”
Outgoing Portuguese Prime Minister Jose Socrates finally announced he would seek a bailout on Wednesday, saying outside help had become inevitable after lawmakers last month rejected a new package of austerity measures.
Socrates, who announced he was standing down after the vote, had presented the cuts as a last chance to avoid a bailout as Portugal must repay some 4.2 billion euros of debt by April 15 and another 4.9 billion euros by June 15.
Despite the vote in parliament, Portugal’s eurozone partners are expected to pressure Lisbon to carry out more spending cuts if it wants to get its hands on cash from the European Financial Stability Fund (EFSF).
“The package must be very strict,” Finland’s Finance Minister Jyrki Katainen said as he arrived for the talks.
In exchange for loans, Lisbon will have to slash its budget and austerity measures “must be harder than (those) that the parliament in Portugal voted against,” Katainen said.
“There must be some structural reforms, fiscal consolidation alone is not enough,” he added.
Talking on Thursday, the finance minister of the continent’s economic powerhouse Germany said that Portugal’s request for EU aid is a “sensible and necessary step,” given its plight.
“The markets also seem to see it this way, judging from initial reactions,” Wolfgang Schaeuble said in a statement.
Luxembourg Prime Minister Jean-Claude Juncker, who heads the Eurogroup of finance ministers, has suggested Portugal would need around 75 billion euros from the EFSF but Belgian Finance Minister Didier Reynders said 80-85 billion was a “reasonable” figure as he arrived for the talks in Hungary.
After its neighbour buckled, Spain has once again found itself having to fiercely deny that it will go cap in hand to help it overcome its financial woes.
Unemployment in Spain is now around 20 percent — the highest in the industrialised world — and its economy has either been in recession or stalled for several years.
A buoyant property market collapsed in 2008, devastating its banking sector. The desperate plight of its regional savings banks has already necessitated a radical restructuring by the Socialist government in Madrid.
The Spanish government insists that it will not need a bailout after introducing its austerity package and reforms, which have proved deeply unpopular.
As she arrived at the talks, Spain’s Finance Minister Elena Salgado said that Portugal would “of course” be the last eurozone country to need a debt bailout.