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Is the bailout a 'good deal' for Portugal?

Text by Sébastian SEIBT

Latest update : 2011-05-05

The EU, International Monetary Fund, and Portugal agreed Tuesday night on a 78-billion-euro aid package. The Portuguese PM is satisfied with the deal, but the bailout is unlikely to prevent Portugal from facing years of recession.

After two weeks of negotiations, Portugal, the EU, and the International Monetary Fund (IMF) agreed Tuesday night on a 78-billion-euro bailout. The aid is, however, less than the financial markets had anticipated.

The deal is generally being viewed as good for the Portuguese government, as Portugal is receiving less aid than the other two European countries that received bailouts (Greece and Ireland). “The government has obtained a good deal,” Portugal’s Socialist prime minister, Jose Socrates, said Tuesday in reaction to the news. He even suggested that the terms of the bailout were more lenient than those negotiated for Greece or Ireland. looks behind the sound bites takes a closer look.

Is 78 billion euros a lot?

The sum of money offered for three years is in line – give or take a few billion euros – with the expectations of Luxemburg’s prime minister, Jean-Claude Juncker, who is heading the group of European ministers in charge of assessing the budget status of various countries on the continent. Juncker told FRANCE 24 on March 24th that he anticipated a bailout of roughly 75 billion euros if Portugal were to ask for it.

The amount decided upon, 78 billion, corresponds to exactly three times the sum of money that Portugal must pay back in debts this year (26 billion euros).

Is it really a good deal, as the Portuguese PM said?

“The deal is good, because the compromise reached shows that the EU validates the austerity measures enacted by Portugal,” Christophe Blot, an economist specialised in the EU, explained to FRANCE 24. The austerity measures that Portugal will impose on its population will be easier to swallow than those enforced in Ireland and Greece.

Indeed, Socrates said Wednesday that there would be no minimum wage cut and no elimination of a thirteenth and fourteenth month of salary for the public sector, for example – two measures imposed on Greece and Ireland. But, Blot said: “Portugal had already adopted several of these measures – like a reduction of the minimum wage.”

What does Portugal have to pay in return?

As in the Greek and Irish cases, the EU and IMF are asking Portugal to drastically reduce its deficit. In 2010, the deficit was 9.1 percent of the GDP and will have to be brought down to 5.9 percent this year, to 4.5 percent in 2012, and 3 percent in 2013. “It’s roughly the same as it was for Ireland and Greece, which means the bailout condemns Portugal to a recession for the coming years,” Blot said. “It may be a good deal, but it’s bad news for the Portuguese.” Portugal will have to prepare yet another series of austerity measures, complete with cuts in spending on social programmes and a probable tax increase.

The Portuguese prime minister has nevertheless expressed satisfaction. He had indeed set more drastic objectives for deficit reduction (4.6 percent of the GDP in 2011, 3 percent in 2012, and 2 percent in 2013). “But back then, it was essentially to reassure the financial markets and to avoid having to ask the EU for financial help,” Blot explained. According to him, the compromise reached Tuesday night sets more “realistic” objectives.

Date created : 2011-05-04


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