Portugal needs more than 100 billion euros to meet is financing needs, although there are doubts the European Union will be prepared to offer a rescue package of more than the 80 billion euros initially on the cards.
Portuguese financial daily Diário Económico reported Tuesday that of the 100 billion euros, 10 billion would go to shoring up the banking system, including 5.3 billion owed by the bank BNP, which was nationalized in 2008. In the absence of private funding, other banks might need capital injections in order to meet solvency requirements, depending on the outcome of stress tests currently being carried out in European banks.
The government is facing public debt redemptions and interest payments that amount to some 54 million euros over the next three years. These include 18.3 billion euros this year, 21.9 billion in 2012 and 13.7 billion in 2013. A further 18.4 billion euros is estimated to be necessary to cover the expected public deficit over the same period.
Teams from the EU and the International Monetary Fund are currently negotiating the terms of the aid Portugal is hoping to receive from the European Financial Stability Facility (EFSF). The aim is to reach an agreement before a meeting of euro-zone finance and economy ministers due to be held on May 16 and 17. Portugal has hefty redemptions to meet on June 15 and needs to access EFSF to guarantee it can fulfill its commitments.
In exchange for emergency assistance, Portugal will be expected to have to submit itself to tough deficit-reduction measures as well as structural reforms aimed at breathing some life into its sclerotic economy.
Diário Económico reported Tuesday that one of the proposals on the negotiating table is to cut all pensions of more than 600 euros a month. An austerity package proposed in March by the Socialist government of Prime Minister José Sócrates included a similar measure, but for pensions of more than 1,500 euros a month.
Those measures were rejected by parliament, leading Sócrates to resign, with general elections called for June 5. These political developments have complicated the process of negotiating the rescue package, with the EU and IMF insisting on a cross-party agreements on the terms of any loan that would be respected by whichever party wins the elections.
A further complication lies much further to the north, in Finland, where the euro-skeptic True Finns party won a surprising 19 percent of the vote in parliamentary elections held on April 17. True Finns leader Timo Soini said on Monday that his party could not support a rescue package for Portugal, backtracking on earlier indications it was willing to negotiate.
However, Finance Minister Jyrki Katainen, whose National Coalition party is heading talks to form a coalition government in Finland, said Tuesday that the issue of aid for Portugal could be left out of those negotiations, allowing Helsinki to vote in favor of a rescue at the May 16-17 meeting.
Rules require the Finnish parliament to vote on European emergency funding, which must be approved unanimously by EU member countries.