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Portugal bailout terms severe, EU says

By Gabriele Steinhauser

Associated Press

Published: Wednesday, May 4 2011 6:25 a.m. MDT

People in a restaurant watch Portuguese interim Prime Minister Jose Socrates, left on screen, with Finance Minister Fernando Teixeira dos Santos, as they address the country live on television Tuesday, May 3 2011, to announce the results of negotiations on an international financial bailout. Local Portuguese officials and delegates from the International Monetary Fund, the European Central Bank and the European Commission have conducted confidential consultations in Lisbon for about three weeks since Portugal asked for help last month.

Francisco Seco, Associated Press

Enlarge photo»

LISBON, Portugal — Portugal's bailout terms are 'severe' and no more lenient than those Greece and Ireland received, an EU official said Wednesday in an effort to dodge any outraged claims of double standards.

In announcing an imminent €78 billion ($115 billion) bailout, Portugal's caretaker prime minister claimed he had won easier terms than those imposed on the other two countries last year. The full details have yet to be revealed, but a softening in conditions could fuel claims to revise Greece and Ireland's deals.

"He sold his highlights of the agreement," said an EU official of Jose Socrates' announcement on Portuguese television Tuesday night, speaking on condition of anonymity in line with the organization's policy. "You have to take into account that they are in an election campaign."

Portugal has battled during more than two weeks of negotiations to escape bailout terms that might hurt its efforts to restore economic growth, with a senior member of the governing Socialist Party saying the previous two bailouts had been "a huge failure."

Greece and Ireland have chided their creditors for imposing conditions that threaten to thwart their attempts to rebuild their economies. Though official details of Portugal's agreement may not be made public before Thursday, Athens and Dublin will be watching closely for signs they can hope for easier payback terms.

Socrates said Portugal had won "a good deal" that spared it from public sector pay cuts and layoffs, a reduction in the minimum salary, the elimination of Christmas and vacation bonuses, and changes to the retirement age.

Portugal won't escape austerity, however. The proposed bailout terms include hikes in sales, property and health service taxes; unemployment benefits cut to 18 months from three years; and cuts to state pensions that are over €1,500 ($2,217) a month, according to Portuguese media.

Privatizations will include flag carrier TAP Air Portugal and airport management company ANA, the national mail company CTT, and stakes in energy company EdP and national electricity distribution company REN, the reports said.

Major public works projects, such as a high-speed rail link to Spain, are to be postponed.

Portuguese banks are expected to receive €12 billion ($17.7 billion) of the bailout sum to ease their liquidity problems.

The interest rate on the rescue loans has not been revealed yet, however.

"The international institutions have acknowledged ... that Portugal's circumstances are very different from those of other countries and very different from the picture that some people here would like to paint," said Socrates, who handed in his resignation in March but remains in office until elections in early June.

The details of the agreement will be announced once there is support from opposition parties, most likely on Thursday, the EU official said.

"It is a severe adjustment anyway," the official said of the bailout program, adding that most of the spending cuts and structural reforms would have to come this year and next.

Portugal is getting an extra year — until 2013 — to cut its budget deficit below the EU's 3 percent ceiling, but that extension was necessary after the country disclosed a much larger than expected budget shortfall for last year. The country now has to reduce its deficit to 5.9 percent by the end of this year from 9.1 percent in 2010, and to 4.5 percent in 2012, Socrates said.

The deal reached by negotiators from the EU, the European Central Bank and the International Monetary Fund with the Portuguese government is not final until it has been endorsed by the opposition parties and other eurozone governments.

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