29th May 2022

'Euro-plus-pact' agreed amid Portugal crisis

EU member states have bowed to last minute German demands on funding the future permanent bail-out mechanism, and indicated financial support will be available for crisis-stricken Portugal if necessary.

Berlin's sudden change of heart this week over a previously-agreed funding schedule for the European Stability Mechanism had threatened to throw a spanner in EU leaders' efforts on Thursday's (24 March) to agree a package of measures to restore stability to the eurozone's wavering economy.

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Finance ministers had earlier agreed to pump €40 billion into the fund in 2013, plus a series of smaller payments in subsequent years.

Despite initial objections from Spain and Italy, leaders have now agreed to five annual payments of €16 billion from 2013, placing less pressure on German public finances in 2013, an election year.

"We confirmed the 'operational features' of the permanent stability mechanism. We will make sure that €500 billion is available with triple-A status," European Council President Herman Van Rompuy told journalists after the meeting.

The ESM will replace the EU's temporary bail-out fund, the European Financial Stability Facility (EFSF), in 2013.

A decision to increase the lending capacity of the temporary fund has been kicked to June at Helsinki's request however. The concession comes with the populist True Finns party running second in the polls ahead of elections on 17 April.

Eurozone leaders reached a deal on a pact of measures to ensure closure economic coordination a fortnight ago, with Van Rompuy branding the deal a 'euro-pus pact' on Thursday after six non-euro-using states - Denmark, Poland, Latvia, Lithuania, Bulgaria and Romania - also agreed to sign up.

In an earlier tweet, the European Council President said Malta and Cyprus would also join the 'euro-plus pact', despite the fact the two countries already use the single currency. Some 25 minutes later a correction popped up.

The twitter trip-up is the second in as many summits. At the specially convened eurozone summit 15 days earlier Van Rompuy had to withdraw another tweet, replacing "We have an agreement ..." with the more cautious "Agreement in principle ...".

Portugal's political meltdown on Thursday was the second economic talking point of the summit, with analysts predicting an international bail-out after Portugal's centre-left prime minister, Jose Socrates, resigned on Wednesday when deputies rejected his austerity package.

European Commission President Jose Manuel Barroso, himself a former centre-right leader in the debt-ridden southern state, insisted the country would push ahead with plans to get its budget on track.

"He [Socrates] made it clear that ... whatever will be the next government, all the commitments in terms of the fiscal targets will be respected," Barroso told journalists.

"We expressed confidence in the capacity of Portugal to overcome the current situation and also its capacity to find the funding it may need in the months to come."

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