Several senior officials directly involved in overseeing Portugal's €78 billion bailout fear a so-called "precautionary programme" may not be enough. Repeated overturning of important budget measures by Portugal’s constitutional court, plus exceedingly high bond repayments due in the years after the rescue ends, have led many in the so-called troika of international lenders to conclude a second full bailout is becoming increasingly likely. “One has to differentiate between putting your toe in the water and getting some market access [and dealing with] the very high refinancing need", said one senior troika official. “Do you think after public sector lenders took on so much Portuguese debt that the private sector will be willing to take it all back?”
The countdown towards Lisbon’s bailout exit begins in earnest next week when parliament is due for a final vote on a tough 2014 austerity budget. Approval by the ruling centre-right coalition’s comfortable majority is expected, but several budget measures will probably then be sent for constitutional court vetting either by Aníbal Cavaco Silva, the president, or opposition parties.
Measures amounting to about €1.4 billion, approximately a third of the fiscal measures planned for next year, could be rejected by the court, which upheld four out 16 challenges to the 2013 budget, contributing to a political crisis that almost brought down the government.
Antonio Barroso, an analyst with Teneo Intelligence, a political risk consultancy, says an adverse court ruling that forced the government to find alternative measures would “debilitate Lisbon’s negotiating position with Brussels” and could create tensions within the coalition. “The jury is genuinely out", said another senior troika official. “We are mentally prepared for either” a line of credit or a second full-scale bailout.
If Portugal goes for an EU credit line, it is expected to request a version that includes tough austerity conditions that are similar to its current bailout; under EU rules, Lisbon does not have the record to seek a safety net with fewer strings attached. The credit line, which Lisbon would only tap into if necessary, would be available for one year and be limited in size to a maximum of 10 per cent of national output, or about €16-€17 billion in the case of Portugal.
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In a letter of response on 25 November, Carlos Moedas, Secretary of State to the Prime Minister, writes: "The FT’s speculation on Portugal fails to give any idea of the transformation which my country has embarked upon to modernise its economy and place its finances on a sound footing in order to attract investment and spur lasting growth.
Portugal will achieve a primary budgetary balance next year. Its current account balance is already positive thanks to the sterling performance of an export sector hardened by more than a decade of tough global competition and a strong currency. In fact between 2010 and 2013, exports grew by 24.2 per cent, above Spain, Italy or Ireland, while imports decreased by 5.1 per cent.
Thus, Portugal’s exports today account for almost 40 per cent of gross domestic product compared with 28 per cent in 2009. This is the result of increased long-term competitiveness, not the shortlived currency devaluations of the past...
Portugal will complete its adjustment programme with success and without the need for a second bailout because its economy is already more sustainable and efficient. What Portugal really needs is to see a swift agreement on a truly European Banking Union, which would repair the transmission of the monetary policy in the euro area and ease the debt burden."
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