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03 March 2014

AFP: President Barroso urges Portugal to exit bailout without safety net

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Barroso, the former Portuguese prime minister, has called for Portugal to continue with fiscal austerity so it can exit its international bailout without a precautionary credit line.

"It is clear that a precautionary programme would provide more guarantees and security", Barroso told Portuguese journalists in Brussels. "But if Portugal is a position to go without, it would be best for everyone", he said.

Current Portuguese Prime Minister Pedro Passos Coelho said last month that Portugal will stick to its austerity course after its financial bailout programme of €78 billion ends in May. But the country plans to wait until April to decide whether or not to request a precautionary credit line from the EU's new bailout fund, the European Stability Mechanism. Such a stand-by loan would help reassure markets that the government could access financing in a pinch, and it would also open up the possibility for the European Central Bank to buy Portuguese government bonds, providing assurance to investors to buy the country's debt.

But a precautionary programme would come with conditions attached, a sensitive political issue after three years of austerity imposed by the so-called Troika of the EU, the International Monetary Fund and the European Central Bank.

While Barroso had advised Portugal in January to seek a precautionary programme, he said "the situation has evolved favourably since". He added the European Commission would support whatever decision taken by Portugal. However, he noted a clean exit from the bailout would be facilitated if there was a wide political consensus to continue to improve public finances, as it would improve market confidence and reduce borrowing costs.

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