UPDATE 4-Finland removes roadblock for Portugal aid

Wed May 11, 2011 3:35pm EDT

Related Topics

* Finland PM-elect promises to support EU bailout plan

* No. 2 party, Social Democrats, agree after lengthy talks

* True Finns still opposed but majority support secured

(Updates with PM-elect's comments)

By Sakari Suoninen and Ritsuko Ando

HELSINKI, May 11 (Reuters) - Finland will help bail out Portugal, its prime minister-elect said on Wednesday, after securing an agreement with the country's second biggest party removed doubts about approval of Portugal's EU/IMF aid package.

Prime Minister-in-waiting Jyrki Katainen said he will attend a Monday meeting of euro zone finance ministers with a mandate to approve the Portuguese rescue package.

"The crisis is not over and Finland cannot be the country which shakes the fragile situation by keeping things unresolved," Katainen, who also is finance minister and head of the leading National Coalition party, told reporters.

"As a responsible European country, we are working together in this crisis."

Support from the No. 2-ranked Social Democrats had been seen as crucial amid strong opposition by the No. 3 True Finns party, which made big gains in last month's parliamentary election in a campaign that criticised the European Union's bailout plans.

Protracted talks among the parties had raised concerns whether Katainen could secure majority support in parliament for the 78-billion-euro ($112.3-billion) aid package for Lisbon. Finland's parliament retains a right to vote on EU affairs.

Portugal had resisted a bailout for months, mindful of the hardship and popular resentment when it called in the International Monetary Fund (IMF) in the 1970s as the country emerged from decades of authoritarian rule.

But financial markets pushed Lisbon's cost of borrowing to historic highs, forcing it to follow Greece and Ireland into EU/IMF protection. [ID:nLDE7431CB]

Katainen said Finland also would back broader EU policies, including the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).

"We are ready to support the Portugal package, we are ready to support EFSF mechanisms and, thirdly, we favour a permanent crisis resolution mechanism," he said.

STICKING POINT

The Social Democrats had been calling for investor participation or for private investors to shoulder more of the risk in the bailout. But with Brussels unlikely to agree to a change in its plans for Portugal, the Social Democrats' demand had been seen a difficult one to accommodate.

A compromise was reached in which Katainen said Finland would make clear to Brussels that it wants Portugal to engage in efforts to persuade lenders to remain invested in the country.

The rise of the True Finns and the risk of the Finnish parliament hampering EU plans pushed Finland into the spotlight, a rare position for the Nordic country of around 5 million people. Katainen said he was relieved by the outcome.

"I have the feeling that if we had not reached a deal here, it might have had a negative impact on other countries and also on the stability of the euro zone. Everyone must behave responsibly," he said.

Finland's parliamentary group that deals with EU matters will vote on Friday. The bailout will receive a clear majority with three of the four largest parties backing it.

The Centre Party, which fell to fourth place from top in the last election, has said it would favour a bailout.

In Germany, the heads of its coalition parties in parliament signalled to Chancellor Angela Merkel that she has the support of lawmakers in backing Portugal aid. [ID:nBAT006229]

(Reporting by Sakari Suoninen, Editing by Michael Roddy)

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