A bailout agreement between debt-riddled Portugal and the European Union/International Monetary Fund appears to be complete with just one more hurdle to clear. And it appears to have come just in time to prevent a default.
Reports out of Europe Wednesday indicate the Portugal bailout will be valued at 78 billion euro/$116 billion (USD). All parties actively were pressing opposition leaders, primarily from the Social Democrats party, for an agreement ahead of the official announcement. The bailout would require a host of Portuguese austerity measures highlighted by the following: an increase taxes in areas including those in the property category, a freeze on the levels of many existing benefits and public sector wages/pensions, barring of spending on new construction projects like the Lisbon airport and Liston-Porto high-speed rail link and tighter cuts, perhaps even potentially significant cuts to, education, health and housing.
The bailout marks the third of the so-called “PIIGS” nations (Portugal, Italy, Ireland, Greece, Spain) to accept financial assistance in less than one year amid crushing debt loads. Additionally, Portugal saw its sovereign credit rating plummet just five week ago as Standard & Poor’s noted that the bailouts pre-conditions almost surely would require a restructuring of debts and that all senior unsecured government debt would be subordinated to the EU’s European Stability Mechanism.
Freddy van den Spiegel, chief economist and director of public affairs for BNP Paribas Fortis, told NACM that Portugal’s bailout is a short-run positive in the sense that it restores some confidence in the EU and the euro currency. However, the economist noted that deep, existing problems are far from resolved and will remain a steep challenge for the Iberian nation in the coming years.
Brian Shappell, NACM staff writer