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Portugal agrees 'good deal' on €78bn bailout

Portugal has agreed a three-year, €78bn (£70bn) bailout from the EU and IMF, the country's caretaker prime minister, Jose Socrates, said.

Mr Socrates' government collapsed last month, sparking a sharp rise in borrowing costs which forced Lisbon to seek a bailout – the third eurozone country after Greece and Ireland to do so. The prime minister, who faces a parliamentary election on 5 June, hailed the package as a victory, saying it included more lenient terms than those imposed on Greece and Ireland as the deal gave Portugal more time to meet budget goals which it had previously agreed.

"The government has obtained a good deal. This is a deal that defends Portugal," he said, although he added: "There are no financial assistance programmes that are not demanding."

He said Portugal would now need to cut its budget deficit to 5.9 per cent of gross domestic product this year, compared with a previous goal of 4.6 per cent. The deficit will have to be cut to 4.5 per cent in 2012 and to 3 per cent in 2013. The deal is, however, yet to be put to the opposition parties. The opposition Social Democrat leader Pedro Passos Coelho said earlier he was ready to meet the lenders.

The reaction from the financial markets was cautious. Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto, said: "He [Mr Socrates] showed us the bright side of the moon. It is the dark side that remains to be seen, and that includes the interest rate."

An EC source said what was presented was what had already been agreed. The source said the interest rate on the loan would be decided at a meeting of eurozone finance ministers in mid-May, when the bailout is expected to be approved.

Agreement is needed by 15 June, when Portugal has to meet a bond redemption of €4.9bn. A newly elected government after the June election will have to enact the terms of the bailout. Mr Socrates added, however, that the loan agreement would not require any changes to the constitution.