EU offers Portugal 80-billion-euro bailout

Portuguese Finance Minister Fernando Teixeira dos Santos

The joint EU-IMF loans, following bailout rescues of Greece and Ireland last year, will be conditional on more public spending cuts, tax rises and far-reaching privatisations -- negotiated with Portuguese politicians facing an angry, fearful electorate around June 5 polls.

This third bailout of a eurozone nation within a year would likely amount to 80 billion euros ($115 billion), EU finance commissioner Olli Rehn said.

Portugal's finance minister, Fernando Teixeira dos Santos, stressed that what was now a caretaker government could not be expected to sell it to its electorate.

The decision to act was taken after the government collapsed last month when parliament rejected its attempts to impose stringent austerity measures to rein in its public deficit.

Then on Thursday outgoing Portuguese premier Jose Socrates, now running a caretaker administration, formally asked for financial aid on the eve of the scheduled talks here in Godollo.

Like Dublin and Athens beforehand the bailout was brought on by skyrocketing borrowing costs.

The decision on Portugal also comes as the EU is locked in controversial talks over a permanent rescue mechanism for wayward eurozone states.

The aim is to set down binding rules once and for all to contain debt contagion that some believe now threatens Spain.

The International Monetary Fund confirmed Friday that Portugal had asked for financial help.

"We are prepared to move expeditiously on this request and hold swift discussions with the Portuguese government," IMF managing director Dominique Strauss-Kahn said in a statement.

One-third funded by the International Monetary Fund, pending final confirmation from Washington, the deal with Lisbon should be conditional on "an ambitious privatisation programme."

It would also require labour market reform and "measures to maintain the liquidity and solvency of the financial sector," Rehn said.

It will require "strict conditionality negotiated with the Portuguese authorities, duly involving the main political parties," added Luxembourg Prime Minister Jean-Claude Juncker, president of the Eurogroup group of countries.

A "cross-party agreement" is to be "adopted by mid-May and implemented swiftly after the formation of a new government" in June.

European Central Bank head Jean-Claude Trichet said it was "essential" that structural budgetary adjustment lay at the heart of the plan, and that the "hard work" should "begin immediately."

Rehn later told Portugal's politicians to show "responsibility" and agree economic reforms, after Teixeira dos Santos said: "It's not for the government to negotiate with the opposition.

"It's not the government's job to promote this negotiation" to the Portuguese people."

Eurosceptic British MEP Nigel Farage said Brussels had made it clear what they expected from the Portuguese people: "You can vote for any political party you like -- as long as it does what it is told," he quipped.

Belgium's Reynders conceded that the politics of the bailout "complicates things because we are no longer negotiating with a government, but one going into elections."

And Sweden's Finance Minister Anders Borg said the new bailout was not yet a foregone conclusion.

However, the EU has money in a fund raised on the back of national contributions to the bloc's annual budget that was used for Ireland and is again, according to Rehn, first in line to be dipped into here.

Friday's decision came after Spain was again forced to insist it could ride out its own debt problems, despite stubborn high unemployment and a stagnant economy struggling to climb out from under a property market crash.

Finance Minister Elena Salgado said it was "completely out of the question" that Madrid should follow Portugal in seeking aid.

Despite successive credit-rating downgrades pushing Portugal into a replay of the Greek and Irish crises, the EU also sees the three bailouts as a freak constellation of circumstances.

Unreliable data concealed the extent of the Greek crisis until it was too late; Ireland was undone by unregulated banks that were "too big to fail"; and Portugal paid the price of out-of-date economic modelling.

Lisbon must repay some 4.2 billion euros of debt by April 15 and another 4.9 billion euros by June 15.