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by Euro Reporter
2011-05-05 09:22:05
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Respite in the markets for Portugal after €78bn bailout

Market pressure eased on Portugal yesterday as details began to emerge about the country's €78bn (£70bn) bailout deal hammered out with the European Union and the International Monetary Fund. The yield on 10-year Portuguese government bonds fell 11 basis points to 9.47 per cent, narrowing the difference in yield – or the interest rate demanded by buyers – between those bonds and similar German government debt. Portugal's borrowing costs last week hit a record since the euro was introduced on fears that the country would default on its debt.

The cost of insuring Portuguese sovereign debt against default through credit default swaps fell by 29 basis points to 620 basis points yesterday – the lowest in two weeks. The government had to pay a higher rate to sell three-month bonds in its first sale since the bailout deal was announced. A sale of €1.1bn of treasury bills maturing in August was priced to yield 4.652 per cent compared with 4.046 per cent at the last sale of equivalent securities on 20 April. Markets are waiting on more details of the plan, including the interest rate Portugal will have to pay on its borrowing, before giving a stronger vote of confidence to the country.

However, analysts said the yield on the three-month notes was less than the rate in the secondary market.  The three-year loan package agreed between Portugal and the EU gives the government more time to cut its budget deficit but officials warned that spending cuts could send the country into recession for two years. Even before the austerity measures – which will also include tax rises – Portugal's economy barely grew over the past decade.

The bailout plan includes €12bn to shore up the country's banks, which will face requirements to increase their capital buffers. The country's banks have relied on European Central Bank funding in the past year and the rescue package is meant to put them in a position that will allow them to support the Portuguese economy. The deal was agreed late on Tuesday to end a fiscal and political crisis that has engulfed Portugal for weeks. Jose Socrates, the Portuguese prime minister, said the package did not require additional cuts this year on top of the measures already proposed by the government and rejected by parliament in March.


Portuguese opposition signals broad acceptance of €78bn EU-IMF bailout

The main Portuguese opposition party signalled a tentative willingness yesterday to accept the terms of a €78 billion EU-International Monetary Fund (IMF) bailout as Dublin sought advantage in the debate over the terms of Ireland’s rescue deal. After talks yesterday with the European Commission, the European Central Bank and the IMF, the chief negotiator for the centre-right Social Democrats said the deal struck late on Tuesday was “influenced” by his party’s proposals and resulted in “better measures” for the Portuguese. The party’s support for the package comes as it is tipped to take the spoils in next month’s general election. European negotiators went into the talks seeking cross-party agreement on the pact as they do not want to reopen talks after the election.

Caretaker Prime Minister José Socrates, a Socialist, has argued the deal will be less onerous than the rescue plans agreed for Ireland and Greece, but a commission spokeswoman cast doubt on such assertions. “As it will not have escaped you, we are in a pre-election campaign in Portugal, so when looking at statements made by politicians you have to bear in mind this context,” she said. The cost of the Portuguese loans has yet to be disclosed but EU leaders have generally backed the trend for lower interest rates in recent months. Bailout interest has been calculated according to a common formula but the fees for Greek loans were cut in March and Ireland was offered a lower rate the same month if it agreed to dilute its corporate tax regime, something Taoiseach Enda Kenny refused to do.

“The Government would be very fed up too if another country was getting a bailout deal better than the terms that we are getting,” Tánaiste Éamon Gilmore said yesterday on RTÉ. He also said the Portuguese rescue would work to the Government’s advantage by widening the crisis to a “more European issue” of economic recovery so that it no longer concerned Ireland alone. As talks continued in Lisbon yesterday, draft copies of Portugal’s EU-IMF agreement pointed to an acceleration of the government’s privatisation programme. This includes the sale before the end of this year of the state electricity supplier, electricity network and shares in the TAP airline.

The health service is slated for €550 million of cutbacks and education for cuts of €195 million. Unemployment and severance entitlements will be cut, while public sector wages and pensions will be frozen. The initial market reaction was modest, with Portugal’s 10-year bond yields falling to some 9.95 per cent from a euro-era lifetime record of 10.32 per cent before the deal was struck. Portugal also faced sharply increased borrowing costs when it raised €1.12 billion in three-month notes at 4.652 per cent.


Portugal's Eurovision protest

Do you feel like leaving Europe when another Eurovision song contest is about to start? Are you feeling less than inspired by this year's British entry, Blue's heartstring-wrenching I Can (featuring such timeless couplets as "We're not the first ones to be divided /won’t be the last to be reunited")? Well, from 10 to 14 May this year you can make a difference. Vote for Portugal at next Eurovision. Portugal's entry, Homens da Luta, are a comic duo posing as 1970s political activists. They look like Latin American revolutionaries – complete with hats and moustaches, though less tanned – and refer to themselves as "professionals of the struggle".

When Homens da Luta won the Eurovision nomination in Portugal in March, they surprised the show's organizers, the serious juries and the other contestants. They even surprised the audience at home who had voted for them. Their song, A Luta é Alegria, about taking to the streets and shouting with joy, is silly and ironic, and yet does seem to work: in Portugal, at least, it has become the soundtrack of people taking to the streets. The 12 March protests against the austerity measures announced under the recently resigned Portuguese Prime Minister José Sócrates saw the biggest crowd gathering in Lisbon since 1974, the year of Portugal's revolution. Homens da Luta have become the face of the "generation in trouble", a name coined by the Portuguese media and the name of the group that initially called the 12 March protests on Facebook.

With their large trousers, tight shirts and their use of "camarada" (comrade), Homens da Luta hark back to revolutionary Lisbon when all young people were engaged in some kind of social reform – in education, agriculture or workers movements. In 1974, reporters, writers and filmmakers from France, Germany and Brazil travelled to Portugal to witness the peaceful revolution and the construction of a new society. That society ended up being not so new or not so different from the rest of Europe, but Homens da Luta go straight to the heart of the matter: we have been missing those times – not because we want a revolution, but because we want to believe that it's possible to go out on the streets and have our voice heard; that it's still possible to be slightly idealistic and believe in the people rather than banks, companies, commissions, troikas.

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