May 16, 2011

78 Billion Euro ($111 Billion-US) EU-IMF Portugal Bailout Sealed

AFP news
written by Staff
Monday May 16, 2011

BRUSSELS — European finance ministers on Monday backed a three-year 78-billion-euro EU-IMF bailout for Portugal on condition Lisbon embarks on a major raft of public sell-offs.

The ministers agreed unanimously to rescue Portugal, a statement said, making it the third eurozone country in the space of one year to receive a multi-billion-euro bailout after Greece and Ireland.

The emergency loans to Lisbon are "warranted to safeguard the financial stability in the euro area and the EU as a whole," said the statement by ministers from the 17-nation eurozone and the remaining 10 European Union states that partly underwrite the emergency financial assistance.

The decision on Portugal was made during two-day talks otherwise focused on measures to ease the terms of Greece's repayment burden.

Portugal, under pressure from the markets for months, finally sought a bailout in April after the minority socialist government and right-wing opposition failed to agree on a new round of budget cuts. The country holds an early general election on June 5.

A key deadline also looms on June 15 when Portugal has to redeem debt of about 5.0 billion euros or face default.

Under conditions agreed earlier in the month, European states will provide two-thirds of the loans while the International Monetary Fund will take care of one third.

The three-year deal requires Portugal to launch an "ambitious privatisation programme," restructure and boost the capital of its banks, and reform its health system and public administration.

The Portuguese government forecasts see the public deficit dropping from 5.9 percent this year to the eurozone ceiling of 3.0 percent by 2013.

The package of loans was made possible when Finnish lawmakers negotiating a new coalition government in Helsinki overcame resistance from an anti-bailout, eurosceptic party that flourished in elections there.

Taking into account a key Finnish condition for the bailout, the EU ministers said in the statement that Lisbon should "encourage private investors to maintain their overall exposures on a voluntary basis."

This means that banks and other buyers would not pull their money out of the country.

The Finns wanted European governments contributing to the bailout to have their investments classed as priority above those of private buyers of Portuguese debt.

The EU ministers said the rescue programme is "both ambitious and frontloaded, while safeguarding the most vulnerable groups in society."

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