The financial aid for the heavily indebted Portugal should be made available as soon as possible. This was announced after a meeting of the euro finance ministers in Godollo, Hungary, as head of the euro group, Jean-Claude Juncker. The aid package should be in place by mid-May.
EU currency commissioner Olli Rehn put the country’s potential needs based on initial estimates at 80 billion euros. But it is still too early for a more precise statement. First, experts from the EU and the International Monetary Fund (IMF) have to determine exactly how much money Portugal needs.
It is clear that the EU is putting massive pressure on the country in the deliberations. Despite the domestic political crisis and an executive government, it is expected that the country will quickly implement a strict austerity program. "It’s up to them," said Finnish head of department Jyrki Katainen. The upcoming austerity package must be tougher than the previous one, which failed in March due to resistance from the Portuguese opposition. It will be important not only to get the state finances in order. In addition, structural reforms are necessary, said Katainen.
Opposition should be involved
Since the Portuguese government has only been in office for two weeks, according to Rehn, the negotiations should also be conducted with the Portuguese opposition parties. The final details of the aid and of the Portuguese austerity and reform program, which must be implemented in return, should therefore be clarified after the new elections on June 5th. The aid package should then take effect after the election.
Most recently, it was unclear whether the government could negotiate a binding adjustment and reform program before the new elections. This is the condition for loans. According to constitutional experts in Portugal, this is possible if the state president and all major parties agree to the austerity plans.
Hope for speedy negotiations
Portugal also wants to quickly conclude the necessary negotiations with the EU and the IMF. "We should find an agreement as soon as possible," said Finance Minister Fernando Teixeira dos Santos. "I am sure we will get the help. Portugal will be able to meet its commitments." Spain’s Finance Minister Elena Salgado reiterated the view that her country could not be infected by Portugal’s problems. The two neighboring countries are closely linked economically. Portugal is the last country that needs help, said the Spaniard.
Despite the warning words in Hungary, Portugal is expected to receive aid from the euro rescue fund, which is currently able to provide emergency loans of around 250 billion euros. There is enough money in the fund to help the country, said Federal Finance Minister Wolfgang Schauble and Eurogroup leader Jean-Claude Juncker. EU Commission President Jose Manuel Barroso had already promised "the fastest possible" aid.
Application officially submitted
On Friday night, Portugal officially submitted the previously announced application for billions in aid to the EU Commission in Brussels. Currency Commissioner Olli Rehn said in Godollo: "I welcome this responsible step." How much financial aid Lisbon needs was not specified. In the EU, a sum between 70 and 80 billion euros is under discussion. The Request for help the euro bailout fund had already triggered mostly positive reactions. The European Central Bank (ECB) was pleased about the request for aid from Lisbon. "We have encouraged the Portuguese authorities to ask for support," said ECB President Jean-Claude Trichet in Frankfurt am Main. The EU Commission also welcomed the Portuguese government’s decision. "This is a responsible step for securing financial stability in the euro area," said Currency Commissioner Olli Rehn.
No special EU summit necessary
According to EU information, no special summit of the European Union is necessary for the release of funds from the euro rescue package. The Eurogroup and the EU Council of Finance Ministers could take all the necessary decisions, said the Hungarian government, which currently holds the EU Council Presidency.
Since last year, euro states with massive budget problems have been able to avert an impending state bankruptcy with the help of the euro rescue package. The centerpiece is the EFSF rescue fund in Luxembourg. In an emergency, it issues bonds on the financial markets for which the other euro countries vouch, and passes the redeemed money on to the country seeking help. Germany stands for more than a quarter of the guaranteed amount. However, actual costs for the German national budget would only arise if Portugal or another country seeking help cannot repay the money in due time that it received with the help of the EFSF.
So far Ireland is the only country that has made use of the rescue fund. Europeans and the IMF put together an aid package worth 85 billion euros last November. A separate package worth 110 billion euros was put together for Greece last year.
Key figures on Portugal
Portugal has just under eleven million inhabitants and joined the euro zone in 1999. The gross domestic product per inhabitant is 16,000 euros per year, around 78 percent of the EU average. In 2009, the year of the global economic crisis, the Portuguese economy shrank by 2.7 percent. In 2010 it went back on a recovery course with a plus of 1.4 percent. Because of the government’s austerity measures and tax increases, the Portuguese central bank expects another 1.4 percent drop in 2011.
Private consumption accounts for around two thirds of Portuguese economic growth and exports account for less than one third. However, private consumption is limited by high unemployment, which is around eleven percent, its highest level in three decades. The country conducts three quarters of its foreign trade with the EU. The average monthly income is around 1100 euros gross.
The deficit in the national budget was reduced from more than nine to a good seven percent of GDP last year – the benchmark in the EU is three percent. This year it should drop to 4.6 percent and then reach the three percent mark again in 2012. The prerequisite for this, however, is that the consolidation policy continues. Instead, the socialist minority government under Prime Minister Socrates no longer found a majority in parliament, which is why it is only in office until the new elections, which are expected to take place in June.