EU FINANCE ministers told Portugal’s political leaders to set aside their economic policy differences in the middle of an election campaign to secure a bailout provisionally estimated at €80 billion.
Calling for cross-party agreement on deeper budget cuts and an “ambitious” privatisation plan by next month, the ministers said each of Portugal’s “main political parties” will be involved in talks on the rescue deal.
As preparations for the euro zone’s third sovereign rescue in a year stepped up, European Central Bank (ECB) chief Jean-Claude Trichet rejected suggestions that the bank had forced the Portuguese authorities to capitulate to relentless market pressure.
“We didn’t force the government, the authorities or the various political sensitivities in Portugal to do anything,” Mr Trichet told reporters.
EU ministers want to conclude a bailout agreement at their next scheduled meeting on May 16th, almost three weeks before Portuguese voters go to the polls in an election prompted by parliament’s rejection of a prior austerity plan.
While well-placed officials acknowledged the political sensitivities involved in such demands, they say the immediate financial pressures on the country leave no alternative but to seek a deal before the election.
EU ministers, reluctant to repeat their experience in Ireland, do not want any incoming government to seek to unravel the deal immediately after the election. To prevent any disavowal of the deal they hope to strike next month, the ministers quickly rejected the prospect of any bilateral or bridging financing for the country.
“It is indeed essential in Portugal to reach a cross-party agreement ensuring that such a programme can be adopted in May,” said EU economics commissioner Olli Rehn.
This would give the European Financial Stability Facility bailout fund time to raise money on the markets to lend to Portugal in June, when a big bond falls due.
The country’s Socialist caretaker prime minister José Sócrates is widely expected to lose the election to centre-right leader Pedro Passos Coelho, of the opposition Social Democratic Party.
Luxembourg’s prime minister Jean-Claude Juncker, chairman of euro group finance ministers, said both parties were sticking to the budgetary objectives of cutting the deficit to 4.6 per cent of GDP this year and 3 per cent in 2012.
In a communiqué issued in Gödöllo, outside Budapest, the finance ministers said the plan which parliament dismissed last month remained the “starting point” for talks on a strict adjustment programme.
“We call on all political parties in Portugal to swiftly conclude an agreement on the adjustment programme and form a new government after the upcoming elections with the ability to fully adopt and implement the agreed fiscal consolidation and structural reform measures,” the ministers said.
Many ministers want the Portuguese authorities to cut deeper than mooted in the austerity plan rejected by parliament. “The package must be really strict because otherwise it doesn’t make any sense,” said Finnish finance minister Jyrki Katainen.
Portuguese minister Fernando Teixeira dos Santos said it was in the country’s interest to have a quick negotiation but recognised the challenge. “That will be demanding, given the political situation in Portugal. More than the government’s commitment, it has to be the country’s commitment,” he said.
The ministers said the programme should include an “ambitious” fiscal adjustment to restore sustainability and measures to maintain the liquidity and solvency of the financial sector.
They also want “growth and competitiveness-enhancing reforms by removing rigidities in the product and labour markets and by encouraging entrepreneurship and innovation.”
They said this should “foster sustainable and balance growth and unwinding internal and external economic imbalances, while safeguarding the economic and social position of citizens”.
British chancellor George Osborne ruled out a direct loan. “I made it clear that, unlike the Irish case, the UK will not be making a bilateral loan to Portugal.”
