LISBON — Portugal has reached agreement with the European Union and IMF on a three-year, 78-billion-euro (US$116-billion) bailout loan, caretaker Prime Minister Jose Socrates said on Tuesday.
Socrates’ government collapsed last month, sparking a sharp rise in borrowing costs which forced Lisbon into becoming the third euro zone country to seek a bailout after Greece and Ireland.
Socrates, who now faces a snap parliamentary election on June 5, hailed the package as a victory, saying it included more lenient terms than those imposed on Greece and Ireland.
The deal gave Portugal more time to meet budget goals which it had previously agreed to.
“The government has obtained a good deal. This is a deal that defends Portugal,” Socrates said.
He provided few details of what terms the bailout included, saying only “there are no financial assistance programmes that are not demanding.”
Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, said: “He showed us the bright side of the moon, it is the dark side that remains to be seen, and that includes the interest rate.”
Socrates said Portugal would now need to cut its budget deficit to 5.9% of gross domestic product this year, compared with the government’s previous goal of 4.6%. The deficit will have to be cut to 4.5% in 2012 and 3% in 2013.
“Some of the parametres look a little softer than expectations such as the higher deficit target and longer time line,” said Vitaly Serebryakov, currency strategist at Wells Fargo in New York.
Officials from the European Commission, the International Monetary Fund and European Central Bank have been in Lisbon for almost a month to hammer out the agreement with Portugal.
Socrates said the agreement still has to be presented to opposition parties.
© Thomson Reuters 2011
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