Portugal Bailout could be $107 Billion

March 25th, 2011
in econ_news

euro flag Econintersect:  According to The Christian Science Monitor, as posted at Yahoo News, a bailout for Portugal would likely be on the order of $107 billion.  This estimate came from  Eurogroup chief Jean-Claude Juncker, speaking to  journalists in Brussels on the sidelines of the two-day European Union summit.  This would be the third bailout by the EU and the IMF (International Monetary Fund), which have already lent $120 billion to Ireland and $156 billion to Greece.

Follow up:

The two-day EU summit ended Friday (March 25) as leaders put the final touches on an agreement to set up a permanent €500 billion ($706 billion) bailout fund to replace the temporary one that expires in 2013.

They also signed off on new rules for closer economic cooperation to limit debt, improve growth and prevent more crises and boosted the temporary bailout fund so it can lend its full  €440 billion ($622 billion) allotment, instead of keeping some of that as reserves to ensure a top bond rating. Countries bailed out after 2013, meanwhile, will get lower interest rates on emergency loans.

From The Christian Science Monitor:

Now a bailout for Portugal looks increasingly likely, too, after the government collapsed. Prime Minister José Sócrates resigned, as he had promised he would, when parliament rejected his proposed fiscal reforms Wednesday.

The measures would have increased taxes for pensioners, personal incomes, and corporations. The measures also sought to trim welfare programs, jobs, and public transportation subsidies. But divisive internal politics have stalled meaningful reforms.

“Every opposition party rejected the measures proposed by the government to prevent that Portugal resort to external aid,â€

The governing Socialist party's coalition partners joined the main opposition party in rejecting measures intended to reduce Portugal's deficit-to-GDP ratio from 7.3 percent in 2010 to 4.6 percent this year, after a record 9.3 percent in 2009.

Ratings agencies continue to downgrade the country’s credit, which is now four notches from junk status. Unemployment has risen to a record 11.2 percent, and the central bank expects the economy to shrink 1.3 percent this year.

In such countries as Portugal, warns Giada Giani of Citigroup, "the level of debt is so high that no matter how much you introduce measures, there is vicious circle." Austerity measures are likely to also undermine job creation and economic growth. Indeed, the Greek and Irish economies continue to shrink despite EU respite.

Source:  Yahoo News (The Christian Science Monitor) and Yahoo News (Associated Press)

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