MercoPress. South Atlantic News Agency

Finland’s anti-Euro strong showing could block Portugal’s bailout negotiation

True Finns leader Timo Soini celebrates his party’s unexpected success

What’s the link between Portugal's bailout negotiations and Finland? Well negotiations began under a cloud Monday after an anti-Euro party scored big gains in a Finnish election and immediately vowed to derail the pending rescue.

Portuguese debt premiums rose to new record highs, also pushed up by mounting speculation that Greece will be forced to restructure its debt.

Representatives of the European Commission, the European Central Bank and the IMF are in Lisbon to set the terms for what would be the Euro zone's third bailout in a year after multi-billion euro deals for Greece and Ireland.

Last week they examined Portugal's public accounts and on Monday began nitty-gritty policy discussions with the caretaker Socialist government. The IMF delegation is headed by Dane Poul Thomsen who oversaw bailout talks in Greece.

The bailout is expected to total 80 billion Euros, but before that Lisbon must sign up to a radical economic reform plan, including privatisations, labour market reforms and steps to shore up fragile banks. The parties aim to seal a deal by mid-May, just weeks before the government faces an acute funding crunch and a snap election due on June 5.

Prime Minister Jose Socrates is serving in a caretaker capacity since resigning last month following the rejection of his latest austerity plans by opposition parties in parliament.

With a general election looming, the rescue deal must be approved not only by his government but by the Social Democrats, who are leading in opinion polls. Despite some pre-election bickering, analysts expect the two leading parties to overcome political differences and commit to the bailout terms.

The leader of the main opposition Social Democrats, Pedro Passos Coelho, said on Monday that the financial aid was “indispensable.”

But regardless of how the bailout talks go, the country now faces a new threat from a fellow Euro zone member that lies some 3,000 km to the north.

In an election in Finland on Sunday, the Euro-sceptic True Finns party made huge gains to come in a close third and may now be in a position to block or at least complicate Portugal's bailout if it ends up joining the next government in Helsinki

It may take weeks to know whether the True Finns party can effectively block the deal, but its success in the election potentially poses a huge risk to Lisbon, which has said it will run out of funds to keep the country running in June.

Any delay in approving the bailout deal beyond the mid-May target could leave European leaders scrambling to find other means of funding for Portugal that has been targeted by investors during the Euro-zone crisis because of its high debt levels and uncompetitive economy.

Unemployment in Portugal is at a three-decade high of over 11%, education levels are well below the euro zone average and the country depends heavily on industries like textiles, where competition from powers like China is fierce.

In related news credit ratings agency Moody's downgraded its rating of Irish banks to junk status, adding renewed pressure on the Euro zone's weaker countries. It follows last week's downgrading by Moody's of the Irish Republic's sovereign debt rating.

Moody's downgraded the long-term bank deposit ratings of Allied Irish Banks, EBS and Irish Life & Permanent by two notches to Ba2. Bank of Ireland was downgraded to Ba1, one notch above its rivals.