Portugal's bail-out
(The Economist) What a difference a year of crisis can make. When Greece was in trouble this time last year, the European Union wavered for months about whether and how to bail it out. Now with Portugal the resistance has been on the other side. José Sócrates, the Socialist prime minister, tried to avoid asking for rescue until the last possible moment before going under. The European Commission, on the other hand, said his request would be processed “in the swiftest possible manner.”
Some European finance ministers expressed relief. Germany's Wolfgang Schäuble called the move a “sensible and necessary step”. Others criticised Portugal for unnecessary delay. "They should have requested aid much earlier. They have placed themselves and Europe in a very difficult situation,” grumbled Sweden's Anders Borg.
One minister who will not be pleased is Finland's Jirki Katainen, leader of the centre-right National Coalition party, who hopes to become the next prime minister following this month's general election. Anti-EU sentiment in Finland has been fanned by the crisis and repeated bail-outs, boosting the far-right True Finns party.
The EU will insist that Portugal submit to a tough adjustment programme, perhaps tougher than the austerity measures that the EU approved but the Portuguese parliament rejected last month, bringing down Mr Sócrates's minority government.
The matter will be discussed at the informal meeting of finance ministers outside Budapest tonight and tomorrow. They may order a mission by experts to negotiate the terms of any rescue, which would them have to be approved by them.
This third bail-out, after that of Greece and Ireland, has caused little surprise. But a political cloud hangs over the negotiations. Does Mr Sócrates's minority government have the authority to negotiate the adjustment measures with the EU and the IMF (detested by many in Portugal after the adjustment programmes it endured in the 1970s and 1980s) before elections in June? And if he is replaced, will his successor come back to Brussels demanding to renegotiate the deal, as Enda Kenny, the new Irish prime minister, has attempted to do?
For now, the commission is sticking to a rather formal line that it will negotiate with the authorities of the day. But it points out that the main centre-right opposition party (called the Social Democrats) supports the request for a bail-out. Nevertheless, the question is whether, in the heat of an electoral campaign in which each will try to blame the other for the country's woes, either Mr Sócrates or his opponent, Pedro Passos Coelho, will be able to agree on precisely how the squeeze should be applied.
Another politician who has a stake in events in Portugal: the president of the European Commission, José Manuel Barroso, a former Portuguese prime minister. His relations with Angela Merkel, the German chancellor, have been testy. She did not appreciate his public pressure for a bail-out duiring the Greek crisis. More recently she has suspected him of being too soft on Portugal. It is not just governments and Brussels-watchers who will be scrutinising Mr Barroso. Now that his native country is in an election campaign, Portugal's political class will inevitably wonder whether his actions somehow favour Mr Sócrates or Mr Coelho (Mr Barroso's political stable-mate).
Long before Portuguese voters pass judgement on all this, the most closely watched verdict will be that of the bond markets. Investors seem to be pleased that the economic uncertainty is ending. But will they get twitchy if the negotiations with Portugal drag on? Will they test the robustness of Spanish government debt? The mood in the euro zone's most troubled economies will not be improved by the European Central Bank's decision earlier today to raise interest rates by 25 basis points. Aware of the criticism, the ECB president, Jean-Claude Trichet, said the rise was not necessarily “the first in a series of interest rate increases”. In other words, the trouble in Portugal and elsewhere may stay his hand for a while.
Some European finance ministers expressed relief. Germany's Wolfgang Schäuble called the move a “sensible and necessary step”. Others criticised Portugal for unnecessary delay. "They should have requested aid much earlier. They have placed themselves and Europe in a very difficult situation,” grumbled Sweden's Anders Borg.
One minister who will not be pleased is Finland's Jirki Katainen, leader of the centre-right National Coalition party, who hopes to become the next prime minister following this month's general election. Anti-EU sentiment in Finland has been fanned by the crisis and repeated bail-outs, boosting the far-right True Finns party.
The EU will insist that Portugal submit to a tough adjustment programme, perhaps tougher than the austerity measures that the EU approved but the Portuguese parliament rejected last month, bringing down Mr Sócrates's minority government.
The matter will be discussed at the informal meeting of finance ministers outside Budapest tonight and tomorrow. They may order a mission by experts to negotiate the terms of any rescue, which would them have to be approved by them.
This third bail-out, after that of Greece and Ireland, has caused little surprise. But a political cloud hangs over the negotiations. Does Mr Sócrates's minority government have the authority to negotiate the adjustment measures with the EU and the IMF (detested by many in Portugal after the adjustment programmes it endured in the 1970s and 1980s) before elections in June? And if he is replaced, will his successor come back to Brussels demanding to renegotiate the deal, as Enda Kenny, the new Irish prime minister, has attempted to do?
For now, the commission is sticking to a rather formal line that it will negotiate with the authorities of the day. But it points out that the main centre-right opposition party (called the Social Democrats) supports the request for a bail-out. Nevertheless, the question is whether, in the heat of an electoral campaign in which each will try to blame the other for the country's woes, either Mr Sócrates or his opponent, Pedro Passos Coelho, will be able to agree on precisely how the squeeze should be applied.
Another politician who has a stake in events in Portugal: the president of the European Commission, José Manuel Barroso, a former Portuguese prime minister. His relations with Angela Merkel, the German chancellor, have been testy. She did not appreciate his public pressure for a bail-out duiring the Greek crisis. More recently she has suspected him of being too soft on Portugal. It is not just governments and Brussels-watchers who will be scrutinising Mr Barroso. Now that his native country is in an election campaign, Portugal's political class will inevitably wonder whether his actions somehow favour Mr Sócrates or Mr Coelho (Mr Barroso's political stable-mate).
Long before Portuguese voters pass judgement on all this, the most closely watched verdict will be that of the bond markets. Investors seem to be pleased that the economic uncertainty is ending. But will they get twitchy if the negotiations with Portugal drag on? Will they test the robustness of Spanish government debt? The mood in the euro zone's most troubled economies will not be improved by the European Central Bank's decision earlier today to raise interest rates by 25 basis points. Aware of the criticism, the ECB president, Jean-Claude Trichet, said the rise was not necessarily “the first in a series of interest rate increases”. In other words, the trouble in Portugal and elsewhere may stay his hand for a while.
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