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Giving few details except that Portugal has more time to meet budget deficit targets than previously promised by the government, caretaker Prime Minister Jose Socrates warned:

“There are no financial assistance programmes that are not demanding.”

The deal is more complicated than Ireland’s 85 billion euro package, agreed last November, or Greece’s 110 billion euro programme agreed on May 2, 2010 — a deal that looks increasingly inadequate to shore up Greece’s finances.
Portugal for its part has high public sector debts, banking problems and structural economic shortcomings, with rigid labour markets and a costly state pension system.

“The Portuguese bailout is certainly not good enough,” said Greg Salvaggio, vice president for capital markets at Tempus Consulting in Washington.
“What it is very similar to the situation in Greece last year where it is simply a band-aid.

“If you look at the plan that was put in place for Greece, for Ireland, and now Portugal, none of them really addressed the underlying fundamentals, which have caused the problem,” Salvaggio said.
Portugal is also set to hold a parliamentary election on June 5 after the previous government collapsed when its plans for austerity measures were voted down by parliament.

The political limbo means the EU and IMF have negotiated a deal with politicians looking for re-election. The caretaker government will have to win the endorsement of major opposition parties before agreeing any bailout deal.
But even then, there is the risk that any package will not be approved by all 17 countries in the eurozone. Finland’s likely next prime minister on Tuesday split the issue of EU bailouts from talks on forming a government with the True Finns and the

Social Democrats, both against the bailout.
Jyrki Katainen, whose National Coalition party won last month’s election, said he would delay formation of a government and hoped instead to secure informal parliamentary approval for the bailout before EU ministerial meetings on May 16 and 17. Few details were given on a deal Portugal has been negotiating with the European Commission, the European Central Bank and the International Monetary Fund for three weeks.

Portugal’s new deficit target is 5,9 percent of gross domestic product this year, rather than the 4,6 percent target of its existing austerity plan.

The target is 4,5 percent next year and 3 percent in 2013. A European Commission source said the interest rate would be set by EU ministers on May 16.

“He showed us the bright side of the moon, it is the dark side that remains to be seen, and that includes the interest rate,” said Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto.

Meanwhile, the deal struck with Greece exactly one year ago looked to be unravelling.
Greece’s finance minister said on Monday he hoped Athens might get more time to repay the EU/IMF bailout loans, already extended from three to seven years, at a lower rate.

Greece’s sovereign debt is set to rise to 340 billion euros, or 150 percent of annual output, this year, a debt that it looks unable to finance without a massive pick-up in growth or one-off income from privatisations.
Michael Meister, deputy parliamentary leader of Germann Chancellor Angela Merkel’s Christian Democrats, said he saw logic in extending the repayment schedule.

On Monday, European Central Bank policymaker Nout Wellink said he was open to the idea of extending maturities on all Greek debt — the first senior ECB official to admit the possibility of a restructuring publicly.
“The direction of the debate is sensible,” Meister said, adding that any softening of the terms would not come without a ‘quid pro quo’ down the line. “For further aid, Greece must also offer additional measures,” he said.

European Union and IMF inspectors are in Greece to assess whether its new austerity plans are tough enough, a review that could determine whether the loan terms are changed.

A restructuring would alarm bondholders, who include many major French and German banks and the European Central Bank. Seventy percent of Greece’s debt is owned by foreign institutions. — Reuters.