BERLIN (Reuters) - German Finance Minister Wolfgang Schaeuble congratulated Portugal for exiting its bailout program in a letter made available to Reuters on Saturday, acknowledging reforms had not been easy but would eventually pay off.
The 78-billion-euro ($107 billion) international bailout imposed years of austerity on Portugal’s citizens and around 15 percent of the workforce are unemployed as the country takes back control of its finances from the European Commission, European Central Bank and International Monetary Fund.
Portugal is the second euro zone state after Ireland to exit a full bailout, having stuck to the European Union’s recipe of belt-tightening to beat the euro zone crisis.
Spain exited an aid program for its banking sector in January without drawing more European funds.
“Steadfast program implementation has allowed Portugal to bring its economy back on track, put public finances on a path to sustainability, and reduce imbalances that had been building up before the crisis,” Schaeuble wrote in the letter addressed to Portuguese Finance Minister Maria Luis Albuquerque.
The exit showed “the European crisis resolution strategy is working,” he added.
The rescue program assembled in 2011 for the nearly bankrupt country concluded with Portugal’s budget in much better shape and borrowing costs at eight-year lows.
But a shock 0.7 percent drop in its GDP in the first quarter pointed to the risks inherent in an economic recovery plan which, by focusing on fuelling export growth by cutting labor costs, has become dependent on volatile foreign demand.
“Of course Portugal still faces important challenges, including with regard to sustaining fiscal consolidation over the medium term and continuing growth-enhancing structural reforms,” he wrote.
“I am reassured by the government’s reaffirmed commitment to tackle remaining vulnerabilities with unchanged determination.”
Now that its lenders have stopped reviewing the economy, Portugal can change policies more freely, even if still needs to gradually reduce the budget deficit under EU rules.
The government has already said it will partly reverse salary cuts in the public sector in the next few years and it is considering cutting taxes next year.
($1 = 0.7297 Euros)
Reporting by Thorsten Severin; Writing by Alexandra Hudson; Editing by Sophie Hares