European Union finance ministers cleared the way for Portugal to receive 78 billion euros ($110.8 billion) in aid, making it the third euro-area country to fall back on official loans.
The EU’s two bailout funds, the European Financial Stability Facility and European Financial Stabilization Mechanism, will each provide one-third of the assistance, while the International Monetary Fund will contribute the rest, the EU said in a statement after a unanimous vote in Brussels today.
Finance ministers called Portugal’s planned budget cuts “ambitious but credible,” according to the statement. The aid program will run for three years.
Portugal follows Greece and Ireland in requesting a bailout from the EU and International Monetary Fund. Politicians are struggling to convince investors that 256 billion euros in aid to the three countries will be enough to stamp out Europe’s debt crisis and prevent the euro region’s first restructuring.
Portuguese Finance Minister Fernando Teixeira dos Santos said before the meeting he was confident of approval because “all the issues that we had to clarify were clarified.” German Finance Minister Wolfgang Schaeuble had also been upbeat about Portugal’s aid request.
The meeting was clouded by the May 14 arrest of IMF Managing Director Dominique Strauss-Kahn on sexual-assault charges in the U.S. A New York judge today ordered Strauss-Kahn held without bail after prosecutors said they considered him a flight risk.
EU spokesman Amadeu Altafaj said before the talks that the EU is “entirely confident” that there will be “total continuity not only in the operations but in the decision-making process” of the IMF in Strauss-Kahn’s absence.
IMF loans will come at a 3.25 percent interest rate. The rate on the European portion will be between 5.5 percent and 6 percent, EU Monetary Affairs Commissioner Olli Rehn said May 10.
The package calls for Portugal to implement the austerity measures that the government proposed and parliament rejected in March. Spending reductions for 2012 and 2013, including cuts to pensions, will amount to 3.4 percent of GDP, while revenue increases will represent 1.7 percent of economic output. The plan also earmarks 12 billion euros for Portugal’s banks.
Portugal’s aid package requires approval by all euro-area governments, with most putting it to parliament.