Merkel Ally Says Germany Ready to Discuss Extra Aid for Portugal

Portugal may be eligible for more aid once its current program expires because the government made considerable efforts to overhaul the economy and cut the budget deficit, a senior German coalition lawmaker said.

“Portugal, according to my perception, has undertaken very great efforts politically -- both in improving competitiveness and fiscal consolidation,” Michael Meister, a deputy chairman of Chancellor Angela Merkel’s parliamentary group, said in a Sept. 27 telephone interview. “If further assistance should be necessary beyond the program, then one should be ready to talk about this.”

Portugal’s Finance Ministry denied at the weekend that there were any talks taking place about a second rescue program. The ministry made its statement on Sept. 28 following a report of another bailout in the daily newspaper Publico.

Portuguese Vice Premier Paulo Portas pointed out the distinction between a “precautionary program” such as Ireland “will start to negotiate” and a second rescue as was given to Greece. “There is no possible comparison between the two things,” he said on Sept. 16. “What Portugal is interested in, is to be in a condition to finance itself autonomously and to be able to benefit from that precautionary program.”

ESM Request

Meister didn’t specify which kind of program he was referring to. Portugal would have to approach the euro countries and the European Stability Mechanism with a request for aid, after which the so-called troika of creditors would examine the application and present a proposal on the possible extent of assistance and the conditions attached to it, he said. Germany’s lower house of parliament, or Bundestag, would have to approve the aid package, he said.

Portuguese Prime Minister Pedro Passos Coelho is facing down public opposition to austerity measures as he prepares to present fresh spending cuts in his 2014 budget proposal in about two weeks. Passos Coelho said that his Social Democratic Party suffered a “national electoral defeat” when it won fewer town halls in municipal elections yesterday than in previous votes.

Portugal is trying to regain full access to debt markets with the end of the aid plan approaching in June 2014. The European Union is considering help next year to try to wean Portugal from the bailout, and officials from the EU and the International Monetary Fund began a regular review of the aid program on Sept. 16.

Coelho, whose term ends in 2015, has to trim spending by about 3.3 billion euros ($4.5 billion) in 2014 after relying mainly on tax increases this year to meet targets set in its 78-billion euro aid program. The government, which aims to meet the EU’s 3 percent budget-deficit limit in 2015, predicts a return to growth in 2014 after three years of contraction.

Meister said he doubts that changes to Portugal’s current program would have a big impact even as the government is making efforts to accomplish the intended return to markets. For the time being, a follow-up program is “not on the agenda,” he said.

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