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Portugal bailout faces hurdles
By Noah Barkin and Andrei Khalip |
April 18, 2011, Monday
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Print Edition
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A crucial new phase of Portugal's bailout negotiations began under a cloud yesterday 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 eurozone's third bailout in a year after multi-billion euro deals for Greece and Ireland.
They examined Portugal's public accounts last week and yesterday 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 bailout is expected to total 80 billion euros (US$114.3 billion).
The aim is to come up with a radical economic reform plan - including privatizations, labor 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, Portugal now faces a new threat from a fellow eurozone member that lies some 3,000 kilometers to the north.
In an election in Finland on Sunday, the euroskeptic 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.
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.
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.
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 eurozone's third bailout in a year after multi-billion euro deals for Greece and Ireland.
They examined Portugal's public accounts last week and yesterday 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 bailout is expected to total 80 billion euros (US$114.3 billion).
The aim is to come up with a radical economic reform plan - including privatizations, labor 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, Portugal now faces a new threat from a fellow eurozone member that lies some 3,000 kilometers to the north.
In an election in Finland on Sunday, the euroskeptic 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.
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.
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.
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