Portugal given 78bn euro bail-out

Finance chiefs including British Chancellor George Osborne announced they had unanimously agreed to rescue Portugal in a joint deal between the EU and the International Monetary Fund, making it the third eurozone country in a year to receive a multi-billion-euro bail-out following similar deals with Greece and Ireland.

The emergency loans to Lisbon are “warranted to safeguard the financial stability in the euro area and the EU as a whole,” said the statement by ministers from the 17-nation eurozone and 10 European Union states outside the single currency, including the UK.

The decision on Portugal was made during two-day talks otherwise focused on measures to ease the terms of Greece’s repayment burden. The meeting was largely overshadowed by the absence of Dominique Strauss-Kahn, the head of the IMF, who is facing sex assault charges in New York.

Portugal, under pressure from the markets for months, finally sought a bail-out last month after the minority socialist government and Right-wing opposition failed to agree on a new round of budget cuts. The country is due to hold an early general election on June 5.

A second key deadline looms on June 15 when Portugal must redeem debt of some five billion euros, or face default.

Under conditions agreed earlier in the month, European states will provide two-thirds of the loans and the IMF one third.

The three-year deal requires Portugal to begin an “ambitious privatisation programme,” boost the capital of its banks, and reform its health system and public administration.

The Lisbon government forecasts its deficit would drop from 5.9 per cent this year to the eurozone “ceiling” of three per cent by 2013. The package of loans was made possible when Finnish lawmakers negotiating a new coalition government in Helsinki overcame resistance from an anti-bail-out, eurosceptic party which did well in recent elections.

Having incorporated Finnish conditions surrounding the protection of foreign investments into the terms of the bail-out, the ministers said Lisbon should now “encourage private investors to maintain their overall exposures on a voluntary basis.”

They described the rescue programme as “both ambitious and front-loaded, while safeguarding the most vulnerable groups in society”.

However, finance chiefs were told by trade union leaders last night they should abandon “brutal austerity” as the answer to the sovereign debt crisis, and instead give struggling countries a chance to restore their own collapsing economies.

An emergency resolution agreed at the start of a conference of trade union leaders in Athens said the drastic measures so far taken in the form of financial bail-outs in return for severe domestic public spending cuts were plunging countries further into debt.

John Monks, the general secretary of the European Trade Union Confederation (ETUC), said the body was in Greece for its congress because the country was “in the eye of the storm”, and to show solidarity with Greek public sector workers demonstrating against deep wage cuts and job losses.

Mr Monks acknowledged that the Greek crisis was partly the fault of the Greek authorities, but added that the EU-IMF bail-out terms were too tough.

In a letter to the ministers accompanying the resolution, Mr Monks said: “The ETUC calls on you to immediately change course. Brutal austerity, both in terms of public finance and in terms of wages, is not working but is instead undermining the economies of countries such as Greece and Ireland.”