Portugal's next bailout review could drop the compliments

Sun Sep 15, 2013 2:54pm EDT
 
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By Axel Bugge

LISBON (Reuters) - Portugal's leaders have generally done what their international lenders have advised, setting a pattern of government compliance and official praise. This week's bailout inspection could be different.

For the first time since Portugal received its bailout in 2011, European Union and International Monetary Fund officials arriving on Monday will have to deal with new Deputy Prime Minister Paulo Portas, who nearly brought down the government in July by challenging the pain of austerity measures.

Portas threatened to take his small, populist center-right party out of government, which would have robbed it of its majority. The standoff won him promotion to deputy prime minister overseeing negotiations on the bailout.

He has already said last week that he wants an easing of the budget deficit goal for 2014, drawing a bold line between his stance and that of former Finance Minister Vitor Gaspar, who never swerved in his determination to stand by budget targets.

"It's no secret that the government and troika (of lenders) had different positions during the (previous) bailout review about the deficit," Portas said.

Gaspar resigned in July, citing lack of support for measures under the bailout.

"I don't think there is any doubt that this will be the hardest review since the programme started," said Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto.

Reflecting that, bond yields have jumped higher in the past few weeks to above the 7 percent level where investors see dangers in 10-year debt, a trend that will not be helped by the U.S. Federal Reserve preparing to run down the bond-buying that had helped to pacify global markets.   Continued...