Go-ahead for Portugal €78bn aid package but with sting in the tail
Portugal last night got the green light for its €78bn financial aid package, but was told it would have to "encourage" private investors not to sell down debt as a condition of the bailout.
The surprise debt clause was announced after a lengthy meeting of European finance ministers in Brussels, where the ministers also wrestled with the prospect of providing a further bailout to still-struggling Greece.
The Portuguese debt demand, which didn't feature in the bailouts of either Greece or Ireland, was inserted at the insistence of Finland as part of an effort to ensure private sector involvement in the country's finances.
In a statement, the European Commission (EC) confirmed the €78bn would be dispersed over a three-year period, with two-thirds coming from Europe and one-third from the scandal-hit International Monetary Fund (IMF).
"At the same time, the Portuguese authorities will undertake to encourage private investors to maintain their overall exposures on a voluntary basis," the EC said, though policymakers admitted Portugal couldn't force any action.
As part of the bailout programme, Portugal will also have to embark on an "ambitious privatisation programme", boost capital in its banks and reform its health system and public administration.
Other demands are focused around "growth and competitiveness enhancing reforms of the labour market" and correcting Portugal's "excessive deficit" by 2013, in line with deadlines previously set by the Council of Ministers.
"Ministers concur with the Commission and the ECB that providing a loan to Portugal is warranted to safeguard financial stability in the euro area and the EU as a whole," finance ministers said in a statement last night.
They added that the programme was "both ambitious and frontloaded, while safeguarding the most vulnerable groups in society" and was "warranted to safeguard the financial stability in the euro area and the EU as a whole".
Portugal finally asked for a bailout in April, joining Greece and Ireland to become the third eurozone country to accept a financial age package and a corresponding "adjustment programme".
A year after Greece got its €110bn bailout, finance ministers were last night faced with the prospect of sanctioning a second rescue package for the embattled country to calm markets and stabilise the euro.
Greece was originally due to return to financial markets next year -- a demand now widely seen as impossible, raising the spectre of a second bailout.
Recent speculation has centred on the Greeks rescheduling their bailout repayments so they could pay the debts off over a longer period of time, though high-ranking ECB officials have said this would not solve the problem.
"We will discuss Greece but not conclusively," said Jean-Claude Juncker, Luxembourg's prime minister and president of the eurozone grouping, speaking ahead of yesterdays' meeting.
"We will be informed by the IMF, the European Central Bank and the European commission and then we will see."