European finance ministers have been pressing Portugal to make deeper spending cuts and privatise state firms in return for a bailout.
Meeting near Budapest, Hungary to discuss the euro zone sovereign debt crisis, the ministers’ main focus was Portugal and they believe details of the bailout could be agreed by mid-May.
Portuguese Finance Minister Fernando Teixeira dos Santos said: “The ECB, the Commission, together with Portuguese authorities must be involved to make an assessment of how much is required and, of course, that also will depend on how long the financial support will be provided.”
They ministers said the adjustment programme would be based on three pillars: an “ambitious” fiscal adjustment to restore financial sustainability; growth and competitiveness enhancing reforms including a far-reaching privatisation programme; and measures to maintain the liquidity and solvency of the financial sector.
Rigid labour laws, red tape in business administration and high wages and production costs compared to Eastern Europe and East Asia have seriously undermined Portugal’s competitiveness.
Portugal’s budget shortfall is expected to be 10.5 billion euros this year. Its total debt is predicted at 97.3 percent of gross domestic product and after years of meagre growth the economy is forecast to shrink by nearly one percent this year.
Lisbon will require about 80 billion euros in aid, roughly the same amount as Ireland but less than the 110 billion euro package offered to Greece nearly one year ago.
EU, European Central Bank and International Monetary Fund officials will meet in Lisbon next week to negotiate the cuts that are deeper than those that were rejected by Portuguese opposition politicians last month.
At the informal meeting at Godollo, in Hungary, officials stressed Portugal’s problems are not about to spread to its larger neighbour Spain, which has reformed its jobs market, pension system and savings banks to avoid a similar fate.