Portugal Agrees to $116 Billion Rescue With Extended Budget Deficit Target
Portugal Bailout
Mario Proenca/Bloomberg
A trader looks at financial data displayed on information screens at the Banco Carregosa SA in Lisbon. Portugal reached agreement with the European Union on a 78 billion euros ($116 billion) rescue plan.
A trader looks at financial data displayed on information screens at the Banco Carregosa SA in Lisbon. Portugal reached agreement with the European Union on a 78 billion euros ($116 billion) rescue plan. Photographer: Mario Proenca/Bloomberg
May 4 (Bloomberg) -- David "Danny" Blanchflower, a professor of economics at Dartmouth College and a former policy maker at the Bank of England, talks about the European sovereign-debt crisis. Portugal reached an agreement with officials preparing its European Union-led bailout that will provide as much as 78 billion euros ($116 billion) in aid and allow more time to reduce the country’s budget deficit. Blanchflower speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)
April 29 (Bloomberg) -- Marius Daheim, a senior fixed-income strategist at Bayerische Landesbank AG, talks about Spanish bonds and the European debt crisis. He speaks with Mark Barton on Bloomberg Television’s "On the Move." (Source: Bloomberg)
Portugal reached an agreement with officials preparing its European Union-led bailout that will provide as much as 78 billion euros ($116 billion) in aid and allow more time to reduce the country’s budget deficit.
The three-year plan set goals for a budget deficit of 5.9 percent of gross domestic product this year, 4.5 percent in 2012 and 3 percent in 2013, Prime Minister Jose Socrates said in Lisbon today. The government in March targeted a deficit of 4.6 percent this year, 3 percent in 2012 and 2 percent in 2013.
“The government was able to obtain a good agreement,” Socrates said in comments broadcast live from his official residence. “Naturally there are no programs of financial assistance that are not demanding and that do not imply a lot of work. That does not exist.”
Portugal in April became the third euro-region country to request EU aid after Greece and Ireland. Officials from the International Monetary Fund, European Commission and European Central Bank arrived in Lisbon last month to prepare a rescue package. That hasn’t prevented Portuguese bond yields from climbing to euro-era records.
The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds reached a euro- era record of 6.48 percentage points yesterday. The 10-year bond yield reached 9.76 percent on April 29, the highest since the euro was adopted in 2000.
Tax Increases
Portugal has already raised taxes and is implementing the deepest spending cuts in more than three decades as it tries to narrow its budget gap and curb debt.
Socrates today said the agreed plan does not involve more cuts in public-sector wages or in the minimum wage. State workers will not be fired and the government will not sell shares in state-owned savings bank Caixa Geral de Depositos SA as part of the agreement, he said.
Consultations with Portuguese political parties will now follow, Socrates said. He did not provide details on the interest rate that Portugal will be charged for its aid plan.
EU finance ministers said in an April 8 statement that the program for Portugal will include “an ambitious fiscal adjustment,” an “ambitious privatization program” and measures to maintain the liquidity and solvency of the financial sector.
Portugal on April 23 revised its 2010 budget deficit to 9.1 percent of GDP from 8.6 percent after the government added three highways to its accounts.
Deficit Target
The government in March reported an 8.6 percent deficit for 2010, missing its target of 7.3 percent. Accounting changes ordered by Eurostat, the European Union’s statistics agency, forced the state to add more than 2 billion euros to the 2010 deficit for impairment costs stemming from the 2008 seizure of Banco Portugues de Negocios SA and also for charges linked to the public-transportation system.
Portugal’s public debt swelled to 93 percent of GDP in 2010 from 68 percent in 2007. The country’s statistics institute on March 31 estimated public debt will reach 97.3 percent of GDP this year.
To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net
To contact the editor responsible for this story: Tim Quinson at tquinson@bloomberg.net
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