After several months of ‘market expectations’ that Portugal would ‘unavoidably’ join Greece and Ireland as the third euro area bailed-out Member State, Portugal’s caretaker government has confirmed today that it has submitted a formal written request for a financial rescue package to the European Commission. This announcement follows a fresh political crisis triggered by the resignation of the socialist Primer Minister Sócrates due to a failure to secure a confidence vote attached to a new austerity program.
As eurointelligence has pointed out such a move comes after Portugal’s banks threatened that they may no longer be able to buy government bonds and after a short term bonds auction on Wednesday in which Portugal refinanced short-term debt at painfully high and unsustainable price (5.12% interest for six-month bills compared with 2.98% at the previous auction early March. The Portuguese treasury paid an average yield of 5.9% on the 12-month short term bonds compared with 4.33% at the last auction March 16).
José Manuel Barroso said that the European Commission had received the request for financial assistance on the part of José Sócrates and will treat this matter “the most expedient manner possible.” The IMF has not yet received a request. Germany made it clear that Portugal could only call on a European Financial Stability Facility (EFSF), ruling out country-to-country bridging loans, AFP reports. Portugal will have to agree to renewed tough austerity targets to obtain a bailout, and how quickly a deal can be negotiated at the start of an election campaign is unclear (see below). The eurozone finance ministers meeting this Friday will be decisive in this respect. Governments will also have to grapple with the size of loans required -Luxembourg Prime Minister Jean-Claude Juncker, who heads the Eurogroup of finance ministers, has suggested a €75bn bail-out.
The current situation raises three main preliminary comments from a Green perspective:
1. Any financial support provided by the European framework created for this purpose (European Financial Stability Facility and European Financial Stability Mechanism) is linked to a medium/long term stringent adjustment program, and therefore, any deal would require a clear backing of the Portuguese Parliament. Knowing that Portugal will need to refinance a non negligible part of its debt in April, and therefore, before any comprehensive solution to its internal political crisis, it would be worth knowing what are the Commission views on the the European responses required in order to tackle this kind of situation of ‘political limbo’ if a financial assistance is required in the short term…
2. We have a clear concern about the very stringent conditionalities attached to any EU-IMF bail-out program. As it was highlighted in the Green discussion paper on a comprehensive response to the euroarea crisis published on line http://www.greens-efa.org/cms/topics/rubrik/6/6661.economy.htm conditions that would equate to lowering minimum income and aggravating poverty and inequalities are unacceptable in our perspective. Rebalancing public accounts should not be done at the expense of the most vulnerable; one should on the contrary ensure that those who benefited the most from the ‘debt driven economy’ contribute the most.
3. This new bail-out puts once again in evidence that the fundamental issues underlying the never ending euro area crisis (see the discussion paper for a detailed analysis on this) remain unresolved despite the commitments of the last spring Summit. As an FT editorial released just before the Irish bail-out stressed accurately:
Europe does not yet seem willing to give up a diabolical bargain that has core states lend to peripheral ones so that they can support their banks, all to save financial institutions in the core from losses. This game of bailouts on the sly cannot be sustained for much longer.
Such an assessment is still valid and unfortunately the euro area crisis game is still far from being over.