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Latest update: 18/04/2011
- eurozone - IMF - Portugal
Portugal enters bailout talks with EU and IMF
Portugal's caretaker government has begun talks with representatives of the European Union and the International Monetary Fund to set the terms of a rescue package expected to total 80 billion euros – the eurozone’s third such bailout in a year.
By News Wires (text)
REUTERS - A crucial new phase of Portugal's bailout negotiations began under a cloud on Monday after an anti-euro party in Finland that has vowed to derail the pending rescue scored strong gains in an election.
Portuguese debt premiums rose to new record highs in early trading, also pushed up by talk of Greek debt restructuring, which Athens again denied.
Representatives of the European Commission, the European Central Bank and the International Monetary Fund are in Lisbon to set the terms for what would be the euro zone's third bailout in a year after multi-billion euro deals for Greece and Ireland.
They examined Portugal's public accounts last week and on Monday began nitty-gritty policy discussions with the caretaker government. The IMF delegation is headed by Dane Poul Thomsen who oversaw bailout talks in Greece.
The officials made no comments as they arrived at the finance ministry on Lisbon's grand Commerce Square by the Tagus -- a reminder of the country's former imperial grandeur.
The bailout is expected to total 80 billion euros. The aim is to come up with a radical economic reform plan -- including privatisations, labour market reforms and steps to shore up fragile banks -- by mid-May, just weeks before the government faces an acute funding crunch and a snap election due on June 5.
Regardless of how those talks go, the country now faces a new threat from a fellow euro zone member that lies some 3,000 km (1,900 miles) to the north.
In an election in Finland on Sunday, the eurosceptic True Finns party made huge gains to come in a close third and may now be in a position to block or at least complicate Portugal's bailout if it ends up joining the next government in Helsinki. "The package that is there -- I do not believe it will remain," said True Finns leader Timo Soini.
The premium investors demand to hold Portuguese benchmark 10-year bonds rather than safer German Bunds rose to new euro lifetime highs of 599 basis points on Monday from Friday's 583 bps, and the 10-year yield hit 9.34 percent.
"There is increased support to euro-sceptical parties and this may make EU leaders a bit more cautious going forward when negotiating attempts to solve the debt crisis," said Niels From, chief analyst at Nordea. "This is weakening the firepower of the euro system."
Funding crunch
It may take weeks to know whether the True Finns party can back up its threat, but its success in the election potentially poses a huge risk to Lisbon, which has said it will run out of funds to keep the country running in June.
Any delay in approving the bailout deal beyond the mid-May target could leave European leaders scrambling to find other means of funding for Portugal, a country of 10.5 million that has been targeted by investors during the euro zone crisis because of its high debt levels and uncompetitive economy.
Unemployment in Portugal is at three-decade high of over 11 percent, education levels are well below the euro zone average and the country depends heavily on industries like textiles, where competition from powers like China is fierce.
Even before the Finnish vote, Portugal faced significant political obstacles to sealing a deal with the EU and IMF. Prime Minister Jose Socrates is serving in a caretaker capacity since resigning last month following the rejection of his latest austerity plans by opposition parties in parliament.
With an election due on June 5, the rescue deal must be approved not only by his government but by the main opposition party, the Social Democrats (PSD), who are leading in the polls in the run-up to the vote.
Bailout talks could be complicated further by what Portuguese weekly Expresso said were disagreements between European officials and the IMF on loan conditions.
Expresso said the IMF was insisting on a lower average interest rate on the bailout loans for Portugal than Greece and Ireland initially received and wanted the aid to last four rather than three years to give the Portuguese economy additional time to recover. It said richer European nations were resisting the idea, fearing a public opinion backlash at home.
An IMF spokeswoman declined to comment on the report that did not cite any sources.
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Comments (1)
Portugal near bankrupcy
Portugal sold today 1M€ in public debt of short term, but with a 12% rate. Since the southern european country pledged the bailout, that the rates of the public dept don´t stop raising records.
The military forces didn´t get their salaries on time, unemployment allowances aren´t being payed aswell, and the inflation keeps growing, to the highest level in more than 5 years.
If Portugal fails the bailout, whether the finnish refuses its contribution or the IMF simply gets that the loan won´t be payed, that country will face bankrupcy, because "there is only money until the end of May" - words of Teixeira dos Santos, the Minister of Finances. With new elections at 5th June, this portuguese request for help has everything to go wrong.
The pressure of the international investment funds, associated to those speculators interested in destroy the Euro coin, broke the weakest link of EU(besides Greece and Ireland): the poor little one, Portugal.
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