LISBON (Reuters) - A package of conditions for Portugal to meet in return for a bailout from Europe and the IMF should be ready within days, a source said Thursday as ministers voiced confidence the negotiations were on track.
European Commission and IMF officials have been in Portugal since mid-April, poring over the heavily indebted country’s public accounts to come up with measures in return for a bailout that is expected to reach about 80 billion euros.
“The work is proceeding in depth and in a completely normal way,” a senior source close to the talks told Reuters. “It is expected that this phase will be completed in the coming days. That means there will be a full package of measures, not just the diagnostics.”
Portugal this month became the third euro zone country to seek foreign aid, following Greece and Ireland, after the minority government collapsed in March, sending the country’s borrowing costs soaring.
Luxembourg premier Jean-Claude Juncker, who chairs the Eurogoup of euro zone finance ministers, said in Paris he was confident a bailout deal for Portugal would be agreed by mid-May, echoing similar comments by Portugal’s caretaker Prime Minister Jose Socrates earlier in the day.
“We have to make an effort to reach an understanding so that a deal can be taken to the Ecofin (EU finance ministers) meeting on May 16,” Socrates told TSF radio.
Analysts said an agreement was urgent because of a tight schedule before Portugal needs to meet a bond redemption of 4.9 billion euros in June — a payment the finance minister has said the country cannot make without foreign funding.
The first batch of the Greek bailout was approved by euro zone finance ministers five weeks after the country requested aid. Portugal asked for a bailout on April 7.
Portuguese 10-year bond yields dipped Thursday after Socrates’ comments and were last at 10.14 percent, after hitting a euro era high of 10.21 percent earlier in the day.
Another euro zone source, however, said that putting together a deal for Portugal was complicated because the country had several problems, suggesting the negotiations could still take some time.
“It’s got a combination of a serious public finances problem, massive structural problems — like Greece — and large banking problems,” the source said.
European Central Bank Governing Council member Carlos Costa warned Portugal’s banking sector could be susceptible to mortgage sector losses if Portuguese unemployment continues to rise. Portugal’s jobless rate hit a 30-year high of 11.1 percent in the fourth quarter of 2010.
While Portugal’s banks did not take the same risks at the height of the pre-crisis credit boom as those in other countries, Costa said the sector was unable to avoid to impact of the sovereign debt woes.
He also said that while a political consensus on the bailout program was needed, there had to be a consensus on wider adjustments for the economy to be able to grow.
“If we don’t create growth in future will we have more problems,” Costa said. “There is a lot at stake.”
Expectations of a speedy deal have risen in the past few days. Weekly Expresso reported Wednesday that the terms of a bailout would be ready and submitted by the end of this week.
“Reaching an agreement with the troika (EU, ECB and IMF) is urgent,” said Filipe Silva, debt manager at Banco Carregosa. “If no agreement is announced and there is no money, Portugal defaults, period.”
Neither government officials nor negotiators from the EU and IMF have given any details of the talks and Socrates said they have to be “quick and discreet.”
Cabinet Minister Pedro Silva Pereira said “the talks are going well” and Portugal would secure a deal before mid-May.
Analysts say the talks are being complicated by a looming a snap general election on June 5 with both Socrates and the opposition wanting to blame each other for the crisis.
The terms are expected to include tough austerity measures like in Greece and Ireland, including higher taxes and public sector cuts. Reforms of Portugal’s labor market may also be included to boost competitiveness.
Still, business daily Jornal de Negocios reported this week that EU and IMF officials may allow Lisbon more time to reach budget deficit goals after revising upwards its deficit for 2010 to 9.1 percent of gross domestic product. That was far above a goal of 7.3 percent.
Additional reporting by Daniel Alvarenga and Andrei Khalip in Lisbon and Luke Baker in Brussels, writing by Axel Bugge; Editing by Mike Peacock