EUROZONE

Portugal reaches deal on bailout with EU and IMF

Portugal has reached a deal with the IMF and the European Union for a €78 billion three-year bailout, but will need cross-party support for its implementation following a snap election on June 5.

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REUTERS - Portugal reached a deal with the European Union and the IMF on Tuesday on a 78 billion euro 3-year bailout, the third euro zone member to do so after Greece and Ireland, caretaker Prime Minister Jose Socrates said.

The deal will need broad cross-party support because the collapse of Socrates’ government last month pushing up borrowing rates and forcing Lisbon to seek a bailout means the winner of a June 5 snap general election will implement it.

Opposition Social Democrat leader Pedro Passos Coelho said he was ready to meet the lenders. Any of the bailout terms that need parliamentary approval will have to be passed after the election.

“The government has obtained a good deal. This is a deal that defends Portugal,” said Socrates, who had resisted asking for a bailout for months. The terms would be less onerous than those set for Greece and Ireland, he added.

He said the deadline for meeting budget deficit goals will be extended, with this year’s target raised to 5.9 percent of gross domestic product from 4.6 percent previously. The deficit must be cut to 4.5 percent of GDP in 2012 and 3 percent in 2013.

In a reminder of the challenges Portugal faces in selling debt, it will hold a treasury bill auction on Wednesday to issue up to 1 billion euros of 3-month bills.

“We don’t expect a buyers’ strike at this T-bill auction, which should target the same risk-tolerant investors who bought T-bills last month, already after the bailout request,” said David Schnautz, a debt strategist at Commerzbank in London.

The interest rate on Portugal’s bailout loan is expected to be set at a meeting of eurozone finance ministers in mid-May.

Portuguese agreement to the loan terms is needed by June 15, when Lisbon needs to redeem 4.9 billion euros of bonds.

“We have said from the beginning that it is important that any programme should have broad cross-party support and will continue our engagement with the opposition parties to establish that this is the case,” European Commission spokesman Amadeu Altafaj said in a statement.

Officials from the European Commission, the International Monetary Fund and the European Central Bank have been in Lisbon for almost a month to hammer out the agreement.

The general election campaign that will now get under way is likely to focus on who is to blame for the country’s economic crisis.
 

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