Portugal contests Germany on 'fully fledged' austerity programme

08.04.11 @ 10:58

  1. By Leigh Phillips

GODOLLO - Portugal is on a desperate quest to limit the scale of its financial assistance by requesting a small loan to keep the country afloat until after its general election in June.

  • The Vasco de Gama Bridge, Lisbon (Photo: F H Mira)

However, Germany and the European Commission are opposed to the idea, insisting that Portugal must commit to a multi-year programme of austerity before the EU will toss Lisbon a life-line.

Heading into an informal meeting of European finance ministers in Godollo, Hungary, EU economy chief Olli Rehn told reporters that he welcomed Portugal's "responsible move" to apply for a bail-out.

"I expect the ministers to also welcome the request ... and begin negotiations on a fully-fledged adjustment programme with a full schedule of reforms and fiscal consolidation," he said.

"It is essential of course to assess Portugal's financing needs and debt sustainability and define the whole programme on that basis … It has to be one fully fledged multi-annual programme."

A senior EU official told EUobserver that in discussions between Portugal and its EU partners, the government has requested a ‘bridging loan' only and does not yet want to commit to a multi-year programme - like Greece and Ireland - until after the election.

In return for the six-month reprieve, Lisbon is offering a one-year programme of austerity and restructuring.

But Germany and its eurozone-hawk allies are "adamantly opposed" to such a bargain. Like the commission, they want a multi-year package.

Arriving in Godollo, Portuguese finance minister Fernando Teixeira dos Santos said: "We are hoping for a quick negotiation and committed to reaching an agreement as soon as possible, but this will be very demanding because of the political situation."

He added that negotiations cannot only be with the caretaker administration but all parties in the chamber.

"The interlocutor must not only be the government, but also all political parties because we need the commitment of the country and not only this government," he said. "A caretaker government is not enough."

According to a survey of voting intentions from business daily Jornal de Negocios performed before the government made the request for a bail-out, the Socialists of caretaker prime minister Jose Socrates have won a sharp boost in support compared to the last poll, closing the gap between themselves and the opposition centre-right Social Democrats.

The Socialists have clawed their way back to 33 percent, up from 26 percent in October while the Social Democrats have slipped slightly from 40 percent down to 39.

The bulk of the increase in support for the Socialists appears to have come from the far-left Left Bloc, whose share has dropped from 12 percent to six percent. The Communists are on eight percent, the same as in the autumn, while the centrist CDS remain unchanged on seven percent.

If poll trends continue to hold or Socrates continues his advance, campaigning that he tried to fight off a bail-out forced on him by the opposition, the opposition Social Democrats could see an absolute majority slip from their grasp and little change to the political stalemate that lead to the government's resignation on 23 March.

Meanwhile, other European ministers did not immediately rule out the Portuguese bridging loan plan.

Asked whether the assistance should take the form of a bridging loan or a multi-year package, French finance minister Christine Lagarde refused to answer, saying only: "All these programmes are a two-way street."

"We are awaiting the measures Portugal is ready to take," she added. "I want to hear what is needed before I put the cheque on the table."

Jean-Claude Juncker, the Luxembourgish prime minister and chair of the eurogroup of states said: "It is a caretaker government and there are elections in June, so it's a little tricky on [the scale of the bail-out]."

Both he and the Portuguese minister said they did not expect a final decision to be taken by ministers on Friday.