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Last updated: April 18, 2011 11:02 pm
Portugal has begun talks on the critical political stage of an €80bn bail-out package amid fears that a strong showing by a populist anti-euro party in Finland’s general election on Sunday could disrupt efforts to reach an agreement.
Concerns about potential delays sent Portugal’s borrowing costs to new euro-era highs on Monday, as the negotiations with senior officials from the European Commission, the European Central Bank and the International Monetary Fund began in Lisbon.
Yields on five and 10-year government bonds reached 10.85 per cent and 9.37 per cent respectively. Ahead of any bail-out agreement, Lisbon plans to tap debt markets again on Wednesday with a short-term debt issue of up to €1bn ($1.4bn).
Fernando Teixeira dos Santos, finance minister in Lisbon’s caretaker government, has warned that bail-out funds need to be approved before June 15 to enable Portugal to meet €4.9bn in debt repayments that fall due on that date.
But protracted negotiations in Finland to form a new coalition government could make it difficult for the Finnish parliament to approve a rescue package by mid-May.
European Union and Portuguese officials hope the deal will be ready for approval at a meeting of EU finance ministers on May 16-17. But European government officials acknowledged on Monday that a later meeting may have to be scheduled if the bail-out talks in Portugal or the government negotiations in Finland threatened to delay an agreement.
Portugal is also preparing for an election on June 5, after the resignation of José Sócrates as prime minister last month. The centre-right Social Democrats, Portugal’s main opposition party and favourites in opinion polls to win the election, said they would meet the European Commission, ECB and IMF within the next two days.
One of the key issues in the negotiations will be the interest rate charged for Portugal’s bail-out loans.
Expresso, a Lisbon newspaper, reported at the weekend that the IMF was in disagreement with European officials because it wanted a lower average interest rate for Portugal than Ireland or Greece initially received for their bail-outs. The report did not quote any sources.
A senior Lisbon banker said an interest rate significantly above 4.5 per cent would have an “exponentially bigger impact” on Portugal and could make sustaining payments difficult in the medium term.
Portuguese officials involved in the negotiations on Monday included Mr Teixeira dos Santos and Carlos Costa, governor of Portugal’s central bank.
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