Struggling Portugal seals £70bn bail-out deal

The country’s interim prime minister Jose Socrates announced that the financial rescue package for his ailing country will run through to 2013, and a government official said the figure includes aid for the cash-strapped banks.

Portugal is the third member of the 17-nation eurozone, after Greece and Ireland, to need a bailout because of crippling debts.

One of western Europe’s poorest countries, Portugal had said it would run out of money next month.

Mr Socrates, who quit last month but is still running the country ahead of a June 5 election, said Portugal won a favourable agreement after more than two weeks of negotiations with the International Monetary Fund, the European Central Bank and the European Commission.

“The government got a good deal, one that safeguards Portugal,” Mr Socrates said in a televised address to the nation.

The aid ensures Portugal can pay its domestic and foreign creditors, but Mr Socrates disclosed few details of the agreement.

The deal has to be endorsed by all European governments.

A senior European Union official said foreign negotiators would speak to opposition parties before revealing the terms of the bail-out.

Analysts had expected the loan to be in the region of 80 billion euro (£72bn).

Portugal is keen to learn the cost of the rescue package it requested to avoid bankruptcy, with officials and analysts fretting over the potentially ruinous consequences of deep austerity measures.

A critical issue is how to calibrate the bail-out terms so that they curb spending without dooming the economy. Portugal is eager to avoid the fate of Greece, where the government still has trouble cutting debt - and many investors expect it to default - because austerity measures are crippling growth.

Last year Portugal’s budget deficit – the shortfall of revenue against spending – reached 9.1 per cent of gross domestic product.