BRUSSELS -- Eurozone finance ministers have agreed on a 78 billion-euro ($111 billion) bailout package for Portugal amid strong speculation that Greece will need another rescue package.
The Portuguese package will be financed by the eurozone states, the EU budget, and the International Monetary Fund (IMF), which will all contribute one-third each.
In return, Portugal must implement several of the reforms that its government proposed and its parliament rejected in March, leading to a snap election that will be held on June 5.
These reforms include steep cuts for the next couple of years in areas such as pensions, as well as an overhaul of the health system and public administration. The goal is to shrink the Portuguese budget deficit from its current 9.1 percent of gross domestic product to below the 3 percent limit set out by the EU, by 2013.
'Ambitious But Realistic'
Olli Rehn, the EU commissioner for economic and financial affairs, said he was satisfied with the agreement to extend economic aid to Portugal, making it the third eurozone country after Greece and Ireland to receive a bailout from the EU and the IMF.
“It is an ambitious but realistic program that will enable Portugal to overcome its economic difficulties and pave the way for a competitive economy that will be able to create jobs and sustainable growth,” he said.
Portuguese Finance Minister Fernando Teixeira dos Santos also expressed his happiness with the adoption of the bailout.
"The program is a strong, ambitious, and comprehensive responding to all the challenges we are facing now," he said.
He said he was relieved that Finland had accepted the terms to pave the way for the rescue package.
“The Finnish have agreed on the program," he said, "and I believe that the program fulfills all their conditions and their concerns.”
The Portuguese package had been in limbo in recent weeks after the euroskeptic True Finns party became Finland’s third-largest party following national elections last month.
Finland is the only eurozone country that needs parliamentary approval for more loan guarantees aimed at other debt-stricken countries of the currency union, and the True Finns’ successful showing in the elections was to a large extent based on the party's vehement opposition to any further bailouts.
No Athens Aid Agreement
Jyrki Katainen, leader of the center-right National Coalition Party and the next likely Finnish prime minister, managed to gather support for the Portuguese deal from all the other Finnish mainstream parties. But Finland did require that private creditors agree that Lisbon sell off state property in order to repay its debt to other EU countries. Finland will also not take part in further bailouts unless the country receiving the aid puts up collateral.
On the issue of another bailout for Greece, EU finance ministers failed to agree on more aid for Athens.
Athens received a 110 billion-euro ($155 billion) EU-IMF bailout last year, which was designed to last until mid-2013. But speculation is rife that the country will need another economic boost far sooner.
Both the EU and the IMF have expressed doubts over Greece’s proposed budget steps and want the government to move faster on its privatization plans.
One of the ideas circulating in recent weeks has been the possible “reprofiling” of the Greek debt, meaning that the time for debt repayment would be extended without decreasing the value of the debt. This could avoid a restructuring of the aid package given to Greece, which would involve a complete renegotiation of the terms.
Jean-Claude Juncker, the president of the Eurogroup -- which bands together the 17 countries using the euro currency -- dismissed the idea of a debt restructuring but stated at the same time that he would be open for reprofiling.
“Nobody was mentioning the need of having a large restructuring," Juncker said. "I would not exclude in a definite way a kind of reprofiling, but this is not an isolated answer. First, we need new Greek measures to reach the fiscal targets of 2011, and then we need to ensure that the privatization program will reach a volume that gives a satisfaction to us, the ECB, and the commission."
Juncker also refused to speculate on what effect the arrest on sexual assault charges of IMF Managing Director Dominique Strauss-Kahn would have for the future of the eurozone bailouts.
“We didn’t discuss in the meeting the situation of Mr. Strauss-Kahn," he said, "but I have to say that I am very sad and upset. He is a good friend of mine, so I didn’t like the pictures I have seen on the TV this morning. It was deeply sad and dramatic. But Mr. Strauss-Kahn is in the hands of American justice.”
The Eurogroup also agreed that the current governor of the Italian Central Bank, Mario Draghi, will become the next president of the European Central Bank (ECB). His candidacy is likely to be endorsed by both the European Parliament and the heads of government in June. If confirmed, Draghi will replace the outgoing ECB President Jean-Claude Trichet in October.
The Portuguese package will be financed by the eurozone states, the EU budget, and the International Monetary Fund (IMF), which will all contribute one-third each.
In return, Portugal must implement several of the reforms that its government proposed and its parliament rejected in March, leading to a snap election that will be held on June 5.
These reforms include steep cuts for the next couple of years in areas such as pensions, as well as an overhaul of the health system and public administration. The goal is to shrink the Portuguese budget deficit from its current 9.1 percent of gross domestic product to below the 3 percent limit set out by the EU, by 2013.
'Ambitious But Realistic'
Olli Rehn, the EU commissioner for economic and financial affairs, said he was satisfied with the agreement to extend economic aid to Portugal, making it the third eurozone country after Greece and Ireland to receive a bailout from the EU and the IMF.
“It is an ambitious but realistic program that will enable Portugal to overcome its economic difficulties and pave the way for a competitive economy that will be able to create jobs and sustainable growth,” he said.
Portuguese Finance Minister Fernando Teixeira dos Santos also expressed his happiness with the adoption of the bailout.
"The program is a strong, ambitious, and comprehensive responding to all the challenges we are facing now," he said.
He said he was relieved that Finland had accepted the terms to pave the way for the rescue package.
“The Finnish have agreed on the program," he said, "and I believe that the program fulfills all their conditions and their concerns.”
The Portuguese package had been in limbo in recent weeks after the euroskeptic True Finns party became Finland’s third-largest party following national elections last month.
Finland is the only eurozone country that needs parliamentary approval for more loan guarantees aimed at other debt-stricken countries of the currency union, and the True Finns’ successful showing in the elections was to a large extent based on the party's vehement opposition to any further bailouts.
No Athens Aid Agreement
Jyrki Katainen, leader of the center-right National Coalition Party and the next likely Finnish prime minister, managed to gather support for the Portuguese deal from all the other Finnish mainstream parties. But Finland did require that private creditors agree that Lisbon sell off state property in order to repay its debt to other EU countries. Finland will also not take part in further bailouts unless the country receiving the aid puts up collateral.
On the issue of another bailout for Greece, EU finance ministers failed to agree on more aid for Athens.
Athens received a 110 billion-euro ($155 billion) EU-IMF bailout last year, which was designed to last until mid-2013. But speculation is rife that the country will need another economic boost far sooner.
Both the EU and the IMF have expressed doubts over Greece’s proposed budget steps and want the government to move faster on its privatization plans.
One of the ideas circulating in recent weeks has been the possible “reprofiling” of the Greek debt, meaning that the time for debt repayment would be extended without decreasing the value of the debt. This could avoid a restructuring of the aid package given to Greece, which would involve a complete renegotiation of the terms.
Jean-Claude Juncker, the president of the Eurogroup -- which bands together the 17 countries using the euro currency -- dismissed the idea of a debt restructuring but stated at the same time that he would be open for reprofiling.
“Nobody was mentioning the need of having a large restructuring," Juncker said. "I would not exclude in a definite way a kind of reprofiling, but this is not an isolated answer. First, we need new Greek measures to reach the fiscal targets of 2011, and then we need to ensure that the privatization program will reach a volume that gives a satisfaction to us, the ECB, and the commission."
Juncker also refused to speculate on what effect the arrest on sexual assault charges of IMF Managing Director Dominique Strauss-Kahn would have for the future of the eurozone bailouts.
“We didn’t discuss in the meeting the situation of Mr. Strauss-Kahn," he said, "but I have to say that I am very sad and upset. He is a good friend of mine, so I didn’t like the pictures I have seen on the TV this morning. It was deeply sad and dramatic. But Mr. Strauss-Kahn is in the hands of American justice.”
The Eurogroup also agreed that the current governor of the Italian Central Bank, Mario Draghi, will become the next president of the European Central Bank (ECB). His candidacy is likely to be endorsed by both the European Parliament and the heads of government in June. If confirmed, Draghi will replace the outgoing ECB President Jean-Claude Trichet in October.