Eurozone member Portugal has reached a “good agreement” on a three-year bailout package worth 78 billion euros from the EU and IMF, outgoing Prime Minister Jose Socrates said Tuesday.
“I would like to announce to the Portuguese people that the government has reached agreement today with the representatives of international institutions on the programme of financial aid to our country,” Socrates said in a televised address.
“The government has reached a good agreement that defends Portugal,” he said.
His office later said Portugal is seeking 78 billion euros ($116 billion) in foreign assistance under the programme.
Officials from the “troika” of the European Central Bank, European Union and International Monetary Fund have been in Lisbon for two weeks negotiating the terms of the financial rescue package.
Socrates said the plan called for a loosening of the deficit reduction targets for Portugal, whose economy is expected to shrink this year as it implements austerity measures.
Lisbon was forced to ask for a bailout last month after Socrates’ government resigned following a parliamentary dispute and rejection of a fourth round of austerity measures sent its borrowing costs prohibitively higher.
Investors had been steadily asking for higher rates of return to lend money to Portugal, which has to roll over billions in maturing debt this year and has a high budget deficit.
Lisbon has to have the bailout package in place by June 15 when it has to repay nearly 5.0 billion euros ($7.3 billion) in maturing debt.
Portugal is the third eurozone member to seek international assistance following Greece’s 110-billion-euro rescue one year ago and Ireland’s 85-billion-euro bailout last November.
Portugal has struggled to get to grips with its finances, even though the government has adopted several austerity programmes, and the rescue plan takes into account the difficulties Lisbon has been facing.
“It is a three-year programme which sets more gradual deficit reduction targets: 5.9 percent this year, 4.5 percent in 2012 and three percent in 2013,” said the prime minister.
Portugal had previously aimed to reduce its public deficit to 4.6 percent of gross domestic product this year, 3.0 percent in 2012 and 2.0 percent in 2013.
These targets were put in doubt when the national statistics office announced last month that the 2010 public deficit came in at 9.1 percent of gross domestic product, above the government’s target of 7.3 percent.
European Union rules require the bloc’s 27 member states to keep their deficits below 3.0 percent, although nations may be permitted some leeway during an economic crisis.
Portugal’s public debt totals nearly 160.4 billion euros or 93 percent of GDP.
The government’s austerity measures have hit hard, with country’s economy set to contract by 1.4 percent this year according to its central bank, complicating efforts to eliminate the deficit.
The quick agreement of the terms of the rescue package means that eurozone finance ministers will be able to review the plan at their regular monthly meeting on May 16.
Approval by the eurozone is anything but certain, however, as an anti-European party leapt that third place in Finland’s elections last month has explicitly rejected a bailout for Portugal.
Even if a Finnish government is formed without the nationalist True Finns, the required parliamentary approval of the Portuguese bailout is not certain.
If approved, the bailout plan go forward after Portugal’s June 5 legislative elections.