Portugal Agrees to a $116 Billion Bailout

Mr. Sócrates said in a televised broadcast on Tuesday night that the creditors had agreed to give Portugal more time to cut its budget deficit than initially foreseen by his government. He described the outcome of the negotiations as “a good deal that defends Portugal.”

Still, he provided few details about the agreement, which will still require endorsement from opposition parties. Mr. Sócrates resigned in March after the Parliament refused to endorse additional austerity measures. To break the political deadlock, Portugal is set to hold another general election on June 5.

The political standoff was followed by Portugal’s bailout request in early April after the government also failed to meet its 2010 deficit target and after investors sent its borrowing costs to record highs, heightening concerns about its ability to meet forthcoming refinancing obligations.

Officials from the International Monetary Fund, the European Commission and the European Central Bank then arrived in Lisbon to discuss an aid program that would allow Portugal to receive European Union-led rescue money by June, the month when it faces its toughest refinancing hurdles of this year.

Simonetta Nardin, a spokeswoman for the I.M.F., confirmed that officials representing the international creditors had reached agreement with the Portuguese government “on a comprehensive economic program that could be supported by the E.C., the E.C.B. and the I.M.F.” She added: “We have said from the beginning that it is important that any program should have broad cross-party support and we will continue our engagement with the opposition parties to establish that this is the case.”

The deal will still require approval by the European Union. The European Commission, the executive of the 27-nation union, is hoping to get the measures ready for Europe’s finance ministers to discuss at a meeting on May 16.

However, even if the deal is blessed by the Portuguese opposition, other obstacles remain, most notably in Finland, where a party critical of euro zone bailouts won 19 percent of the vote in an election last month. It has said that it cannot support a Portuguese bailout and it remains unclear when a new Finnish government will be in place.

On Tuesday evening, meanwhile, Mr. Sócrates said he would present the deal to opposition parties and called on them to show “a sense of responsibility and a superior sense of national interest” to ensure Portugal receives emergency financing swiftly.

Mr. Sócrates said that, under the three-year plan, the deficit would need to be lowered to 5.9 percent of gross domestic product this year, 4.5 percent in 2012 and 3 percent in 2013. Last year, his government vowed to stick to a tougher schedule to lower the gap to 4.6 percent this year, 3 percent in 2012 and 2 percent in 2013.

He suggested that creditors had recognized that Portugal faced a less critical situation than other ailing euro economies. “Knowing other external aid programs, Portugal can feel reassured,” he said. Last year, Greece secured a bailout package worth 110 billion euros and Ireland 85 billion euros.

As examples of the relatively lenient terms granted to Portugal, he said the three-year program did not involve more cuts in public sector wages or in the minimum wage, or additional layoffs of state employees.

When the government requested a bailout early last month, Pedro Passos Coelho, the leader of the main Social Democratic opposition party, said that he backed the decision to seek outside help. However, in the run-up to next month’s general election, center-right opposition parties, who are leading in opinion polls, are unlikely to want Mr. Sócrates to reap the political benefit for negotiating a bailout that they blame his government for in the first place.

Stephen Castle contributed reporting.

 

Borrowing Costs Rise for Spain and Portugal

MADRID — Spain and Portugal on Wednesday managed to raise the targeted amounts in their latest debt auctions, an important test of market confidence amid Lisbon’s negotiations for a financial bailout and Madrid’s attempts to avoid needing one.

Spain sold €3.37 billion, or $4.9 billion of debt, with the average yield on the benchmark 10-year bond rising to 5.47 percent from 5.16 percent last month. The auction met with strong demand and was at the top end of its target. That was an improvement on a Treasury bill auction on Monday, when Spain barely managed to meet its minimum target despite offering higher rates to investors.

Portugal also had to offer higher rates in the sale of €1 billion of short-term Treasury bills, but met its target and drew strong demand. Analysts suggested that the result will encourage the Portuguese Treasury to sell more short-term debt while its bailout talks continue.

The bond auctions came amid worries that the financing difficulties of ailing euro economies are far from resolved — even those of countries already rescued, like Greece. Athens received a €110 billion bailout last year but may still have to restructure its debt because of the unsustainable cost of repaying investors at double-digit interest rates.

The Greek finance minister, George Papaconstantinou, on Wednesday again ruled out such a move, saying it held “huge dangers for Greece, for Greek banks, for households,” Bloomberg News reported. But such statements have failed to persuade investors.

Meanwhile, strong gains in last weekend’s elections in Finland by nationalist politicians, who are skeptical about having to bail out fellow euro members, have raised concerns about completing the €80 billion rescue package requested by Portugal. In the Portuguese auction Wednesday, yields for six-month bills rose to 5.53 percent from 5.12 percent at the last auction on April 6.

“The costs of funding are up sizably as a result of the spillover effects from Greek restructuring talks, and this might reignite contagion fears,” Chiara Cremonesi, a fixed-income strategist at UniCredit, wrote in a note to investors regarding Spain and Portugal. “The good news is that demand was healthy, and this will reassure investors.”

Market sentiment has seesawed in the past months amid diverging signals from European politicians about their willingness to provide further financing to countries that have already requested a rescue and prepare for possible additional bailouts. In particular, any bailout of the Spanish economy, which is bigger than that of Greece, Ireland and Portugal combined, could put the survival of the euro in question.

At its previous auction of 10-year bonds, for instance, the Spanish Treasury managed to lower slightly its borrowing costs after a mid-March agreement by European leaders to strengthen the European Financial Stability Facility available to rescue troubled economies, as well as allow the facility to purchase government debt in some conditions.

Since then, however, the European political landscape has become more fragmented because of the fall of the Portuguese government and the Finnish election result.

Officials from the International Monetary Fund, the European Commission and the European Central Bank arrived in Lisbon last week to start negotiating the terms of a bailout. Their goal is to complete a deal by mid-May, before the general election scheduled for June 5. June is also the month when Portugal faces its toughest refinancing hurdles of the year.

Slovaks dissent over fund

A Slovak governing-coalition party said Wednesday that it would not support the creation of the European Union’s permanent bailout fund, potentially endangering the bloc’s main tool to quell fiscal crises, Bloomberg News reported from Bratislava, the country’s capital.

The Freedom and Solidarity party, one of four coalition members, will vote against Slovak participation in the so-called European Stability Mechanism, which is set to be created in 2013 to help distressed countries, the party’s leader, Richard Sulik, said. While supporting the creation of the temporary rescue facility, the coalition last year rejected Slovakia’s participation in an international bailout of Greece.