Portugal prime minister slams opposition

LISBON Sun Apr 17, 2011 11:03am EDT

Portuguese Prime Minister Jose Socrates gestures as he gives a speech during Socialist Party Congress in Matosinhos, near Porto April 10, 2011. REUTERS/Miguel Vidal

Portuguese Prime Minister Jose Socrates gestures as he gives a speech during Socialist Party Congress in Matosinhos, near Porto April 10, 2011.

Credit: Reuters/Miguel Vidal

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LISBON (Reuters) - Portugal's caretaker Prime Minister Jose Socrates criticized the main opposition party on Sunday, showing pre-election jostling may complicate a tough new phase of bailout talks that start on Monday.

Representatives of the European Commission, the European Central Bank and the International Monetary Fund are in Lisbon to set the terms for a rescue that is likely to reach 80 billion euros and would impose harsher austerity on one of Europe's weakest economies.

They pored over the country's public accounts last week and will start discussions on Monday on the new policy measures Portugal must commit to in order to receive the aid. Among new measures the so-called "troika" will insist upon are steps to shore up the banking system and aggressive privatizations.

With a snap parliamentary election set for June 5 after the minority Socialist government resigned last month, any aid deal before the ballot would have to be approved by both the Socialists and the main opposition Social Democrats (PSD), who lead in opinion polls.

Socrates appealed on Sunday for cross-party support in the bailout negotiations, but also used the opportunity to lash out at the PSD for having rejected previous austerity proposals, a step which forced him to resign and triggered the vote.

"I hope that those who scuppered a solution do not do it again, for Portugal's sake," Socrates told a meeting of his party, accusing the center-right PSD of waging "political guerrilla warfare out of greed for power" and failing to present any of its own solutions to the country's problems.

"Enough irresponsibility, enough lightness -- the moment demands that all the political leaders concentrate on the defense of our country's interests," Socrates said.

EVENTS COMPLICATE DEAL

The PSD on Wednesday struck a conciliatory note saying it was ready to provide all help necessary to the government to secure the bailout, while demanding answers from the government on the state of public accounts.

Analysts expect a cross-party deal to be reached, even though the blame game is not making the process easier and events out of Portugal's control could complicate European approval of a deal.

"I think the bailout deal is on track," said Antonio Costa Pinto, a political scientist at the University of Lisbon, noting however that pre-election squabbling would not help.

In addition, Finland's anti-euro True Finns party is expected to make big gains in an election on Sunday, threatening the pro-European government and raising the chance of disruptions to the financial rescue plan for Portugal, although EU officials have played down that risk.

Portugal's two relatively small hard left parties, the Left Bloc and the Communists, are staunchly against the bailout, but both said at the weekend they expected the Socialists and the PSD to "surrender to the IMF."

Aside from political wrangling, the bailout talks may be complicated by what Expresso weekly said were disagreements between European officials and the IMF on loan conditions.

Expresso said the IMF was insisting on a lower average interest rate on the bailout loans for Portugal than Greece and Ireland initially received and wanted the aid to last four rather than three years to give the Portuguese economy additional time to recover.

It said richer European nations were resisting the idea, fearing a public opinion backlash at home.

Higher taxes and public service wage cuts imposed by Portugal to cut the budget deficit are weighing on consumption and are expected to lead to a contraction of the economy this year, the second recession in three years.

The IMF expects Portugal's economy to contract 1.5 percent this year and 0.5 percent in 2012, while Standard & Poor's ratings agency on Friday predicted an economic drop of at least 2 percent this year and 1.2 percent in 2012.

(Editing by Noah Barkin)

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