MercoPress. South Atlantic News Agency

Euro aid package for Portugal approved but private bond holders also involved

Integrated Europe: Lisbon’s rescue conditioned by Helsinki

Euro zone finance ministers approved Monday a three-year, 78-billion Euro emergency loan program for Portugal and said Lisbon would ask private bondholders to maintain their exposure to its debt.

The decision is the third bailout granted to a Euro zone country in the past year, after the EU and IMF put together a 110-billion-Euro package to Greece last May and an 85-billion-Euro program for Ireland in November.

It is first time a country has asked private investors not to sell down their holdings of bonds on a voluntary basis.

In a statement, the EU said the program would cover financing needs of up to 78 billion Euros, shared equally (26 billion Euros each) among the European Financial Stability Facility, the European Financial Stability Mechanism and the IMF.

“At the same time, the Portuguese authorities will undertake to encourage private investors to maintain their overall exposures on a voluntary basis,” the statement said.

Portugal is also expected to embark on an ambitious privatisation programme to strengthen its public finances.

Both the request to private investors and the privatisation program were conditions set by Finland last Friday for their support of the bailout. All Euro zone bailouts must be unanimously approved by all 17 Euro zone member states.

The request to bondholders appears similar to the Vienna Initiative of the European Central Bank, the European Bank for Reconstruction and Development, regulators and banks with subsidiaries in Central and Eastern Europe from January 2009.

The initiative launched at the height of the financial crisis triggered by the collapse of investment bank Lehman Brothers, was to ensure that parent bank groups publicly commit to maintain their exposures and recapitalise their subsidiaries in central and eastern European countries as part of financial aid packages from the European Union and the IMF.

Of EU members, Latvia, Hungary and Romania received such packages and IMF data shows that the commitments of banks under the initiative have been honoured.