Bailout chief says Portugal's terms are as onerous as Ireland's
THE EUROPEAN Commission’s chief negotiator of Portugal’s €78 billion bailout has questioned claims by caretaker premier José Socrates that the package will be less onerous than the rescue plans for Ireland and Greece.
“The programme is by no means lighter but is much different. In fiscal terms, it is not really lighter, and in terms of structural it is much deeper,” said the commission’s mission chief Jürgen Kröger. “I will be honest. This is not an easy programme. It is a tough programme, necessary, but we consider it fair.”
While the interest rate on the €52 billion European element of the country’s loan package will not be decided until euro zone finance ministers meet on Monday week, Mr Kröger suggested the rate may be similar to the rate on Greek rescue loans. These carry an average interest fee of 4.2 per cent, after EU leaders agreed to cut the rate two months ago. This is considerably lower than the interest rate on Ireland’s loans – 5.8 per cent on average.
While EU leaders have agreed to cut the rate by one percentage point, the decrease has yet to take effect because France and Germany have been pushing for a concession from Dublin on corporate tax in exchange for a cut.
Tánaiste Éamon Gilmore has indicated the Coalition would be “very fed up” if another country received better terms than Ireland. Portugal will pay a higher rate for loans of €26 billion from the IMF, one-third of the total. The remainder is shared by euro-zone countries and the commission. Its IMF loans will have an interest rate of 3.25 per cent for the first three years, and 4.25 percent after that. The average IMF lending rate to Ireland is 3.04 per cent for the first three years and 3.85 per cent after that.
Agreement on the Portuguese programme comes with renewed political pressure over European bailouts in Germany and opposition to the plan in Finland.
With the anti-euro True Finns resisting the bailout in post-election coalition talks in Finland, an MP in the German government suggested yesterday Portugal sell its gold reserves. “Before risking other people’s money, Portugal should first sell its family jewels, especially its gold reserves,” said Frank Schaeffler, a member of chancellor Angela Merkel’s Free Democrat allies in government.
At the height of the debt crisis last year, Mr Schaeffler suggested Greece should sell off some of its islands to help fund a bailout.
EU economics commissioner Olli Rehn and IMF managing director Dominique Strauss-Kahn put Portugal on notice yesterday that the deal will require “major efforts” from its people.
As Mr Socrates Socialist administration warned the rescue programme will plunge its economy into recession for two years, Mr Rehn and Mr Stauss-Kahn said the bailout represented a “defining moment” for the country.
IMF mission head Poul Thomsen said the Portuguese economy faced “significant headwinds in the next three years” and was expected to contract by 2 per cent in 2011 and 2012 before expanding again in early 2013.
This sent Portuguese bond yields higher, with the rate on 10-year paper rising 0.16 per cent to 9.89 per cent while two-year money crashed through the 11 per cent barrier to 11.14 per cent.