Renewed bail-out concerns over Greece and Portugal

Greece awaiting approval for €8.1bn pay-out; Portugal’s bond markets react to political instability.

Eurozone finance ministers will meet in Brussels on Monday (8 July) amid renewed worries about Greece and Portugal.

The Greek government has until tomorrow (5 July) to convince the ‘troika’ of the European Commission, European Central Bank and International Monetary Fund that it has met private-sector reform targets, a condition of the country receiving its next bail-out loan instalment.

Only if the troika is satisfied that reforms are underway will finance ministers, meeting for the last time before September, approve the €8.1 billion to meet Greece’s financing needs through the summer. The requirements include moving 12,500 public sector workers into a scheme that would force them to be made redundant or transferred to new jobs inside a year.

“Progress has not been spectacular,” said a senior European Union official yesterday (3 July), acknowledging that it was possible that finance ministers would not approve the payment. A second July meeting has been ruled out, meaning that Greece could face a difficult summer if it does not obtain the money.

The official said that if Greece failed to get the €8.1bn this month the country would find the next few months “uncomfortable”. “Things get quite interesting,” the official said.

Urgent matters

While Greece is likely to dominate the finance ministers’ discussions, Portugal is of more pressing concern, with bond markets reacting negatively to political instability following the resignation of Vítor Gaspar as finance minister on Monday (1 July).

Gaspar, considered the architect of the economic reforms and tax rises that were a condition of Portugal’s €78bn bail-out, said he was stepping down because the programme had lost public support. Foreign minister Paulo Portas, the head of the junior coalition partner, the Popular Party, resigned on Tuesday (2 July) in protest at the naming of Maria Luís Albuquerque, the treasury minister, as Gaspar’s replacement.

Fact File

On Tuesday (9 July) all 28 finance ministers are expected to give the final go-ahead for Latvia to join the euro. Their last meeting before the summer has otherwise a very light agenda. France is expected to use the meeting to raise objections to the wording of a deal between the European Parliament and the Council of Ministers on legislation aimed at tackling financial market abuse.

Prime Minister Pedro Passos Coelho, in power since June 2011, vowed to keep the government together and is scheduled to meet Aníbal Cavaco Silva, the country’s president, today in a bid to assuage concern.

Yields on Portugal’s benchmark ten-year bonds soared yesterday to above 8%, approaching the levels they reached when Portugal was forced into the bail-out in May 2011.

José Manuel Barroso, the president of the Commission, and a former prime minister of Portugal, said yesterday that he was watching developments in Portugal “with very serious concern”.

“The initial reaction of the markets shows the obvious risk that the financial credibility recently built up by Portugal could be jeopardised by the current political instability,” Barroso said.

Portugal is hoping to emerge from the bail-out programme in May next year, but bond market volatility could put that ambition at risk and force the government to ask for another bail-out.

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