|Many in Portugal are unconvinced by promises that they will not feel the economic pinch [AFP]|
Portugal has reached a deal with the European Union and International Monetary Fund for a $115 billion three-year bailout, making it the third eurozone member to do so after Greece and Ireland.
Jose Socrates, the caretaker prime minister, announced the deal on Tuesday.
It will require broad cross-party support as Socrates’ government collapsed last month, leading to the calling of a June 5 snap election. The winner of that poll will now implement the bailout, and the agreement will require parliamentary approval.
Pedro Passos Coelho, the leader of the opposition Social Democrats, has said that he is ready to meet with lenders.
“The government has obtained a good deal. This is a deal that defends Portugal,” said Socrates, who had earlier resisted asking for a bailout for months. He said the terms of the agreement were similar to those signed by Greece and Ireland.
Socrates said that this year’s target for the budget deficit had been raised from 4.6 per cent of Gross Domestic Product (GDP) to 5.9 per cent, and that the deadline to reach it had been extended. The deficit will have to be cut to 4.5 per cent in 2012 and 3 per cent in 2013.
The country is set to hold yet another treasury bill auction on Wednesday in order to issue 1 billion euros ($1.48 billion) in three-month bills.
“We don’t expect a buyers’ strike at this T-bill auction, which should target the same risk-tolerant investors who bought T-bills last month, already after the bailout request,” said David Schnautz, a debt strategist at Commerzbank in London.
Parties must agree
The interest rate on Portugal’s bailout loan has not been set yet, but is expected to be decided at a meeting of eurozone finance ministers in mid-May.
Portugal’s parliament will have until June 15, 10 days after the election, to agree to the loan terms in order to redeem 4.9 billion euros ($7.26 billion).
“We have said from the beginning that it is important that any programme should have broad cross-party support and will continue our engagement with the opposition parties to establish that this is the case,” Amadeu Altafaj, the European Commission spokesman, said in a statement.
Officials from the European Commission, the International Monetary Fund and the European Central Bank have been in Lisbon for almost a month to hammer out the agreement.
A critical issue for Portugal will be curbing its deficit while not stunting growth – a pitfall that Greece has not been able to avoid.
Socrates said there would be no layoffs in the civil service, no changes to job and welfare entitlements for citizens and no cut in the minimum salary as a result of the deal.
The Bank of Portugal last year identified several areas where deep change is needed, including education, bureaucratic procedures and the legal system. The IMF has previously singled out long-standing Portuguese job protection laws as needing to be changed, to be replaced with new legislation making it easier to hire and fire workers.
Civil servants, unconvinced by promises that they will not feel the economic pinch, say they will be going on national strike on Friday, in a move that is expected to disrupt schools, hospitals, courts and public offices.