Portugal looks to be in line for an EU bailout after austerity measures were rejected by parliament on Wednesday.

Prime Minister José Socrates stepped down after his minority government was defeated by the opposition, who said that his package of decreased public spending and tax hikes went “too far”. The suggested measures were met with widespread protests from the public but the rejection has thrust the country into political uncertainty.

Jean-Claude Juncker, chief of the Euro Group, said that a bailout of €75bn seemed an “appropriate” amount. Euro Group has political control over the Euro currency and the EU monetary union.

Ireland and Greece were forced to accept European bail-out packages last year. Portugal is the third Eurozone state to seek help from the EU. The southern European country – the ‘P’ of the ailing ‘PIGS’ economies – will probably turn to the International Monetary Fund for additional assistance. There is speculation that the Portuguese bail-out will absorb the EU’s fund and leave nothing in the pot for the next debt-ridden economy.

The Portuguese vote came on the eve of a meeting in Brussels where the future of the EU’s debt policy was scheduled to be agreed upon. Instead, and as a result of the Portuguese crisis, the final agreement on the European ‘stability mechanism’ will be signed off in June.

Oil is hitting a 30-month high as a result of the Middle East instability, and European stocks slipped this morning. The Spanish IBEX fell by 1% and the FTEU3 was down 0.3%.

Reported by Michael Jordison.

Back to the Tripbase News Homepage