Portugal passes EU-IMF bailout scrutiny, but banks a worry | Business| Economy and finance news from a German perspective | DW | 04.06.2012
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Portugal passes EU-IMF bailout scrutiny, but banks a worry

Portugal will receive a next batch of rescue loans from the EU and the International Monetary Fund (IMF), after successfully passing a fourth review of its reform plan. But worries about Portugal's banks are mounting.

Portugal was considered meeting its "quantitative objectives" and "respecting" its own recovery program, Portuguese Finance Minister Vitor Gaspar said Monday, following a fourth review by the country's EU and IMF lenders.

"Our budget roll-out remains in line with our 2012 targets and the government should be able to bring the deficit down to 4.5 percent of GDP as planned," Gaspar said.

Last year, Portugal was the third eurozone country, after Greece and Ireland, needing to be bailed out by the European Union and the International Monetary Fund (IMF).

In return for a rescue package worth 78 billion euros ($96.7 billion), the country in the EU's southern periphery promised to reform its economy and impose austerity measures.

In May, the EU Commission still expected Portugal's budget deficit to reach 4.7 percent and its overall debt to jump to 118 percent of GDP this year, as the country's economy would slump by a worse-than-expected 3.3 percent in 2012.

Despite the small difference in figures, the EU-IMF auditors concluded that Portugal would meet its debt-reduction targets, thus qualifying for a next tranche of rescue loans worth 4.1 billion euros.

Bank bailout

According to the Finance Ministry, some of the money was needed to inject "more than 6.6 billion euros" in government money into ailing private banks Banco Comercial, Caixa Geral de Depositos, and Banco BPI.

The banks needed the injections in order to "meet the EU's new capital criteria," set in the wake of the 2008 financial crisis, which left many European banks critically underfunded to continue lending to the real economy.

European banks are required to shore up their reserve cushion of high-quality capital to 9 percent by the end of June in a measure aimed at strengthening lenders against financial market uncertainty amid the continent's debt crisis.

uhe/gsw (AFP, Reuters, dpa)