Finland uneasy over Portugual bailout, delays vote

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Posted: May 10, 2011 1:49 PM
Finland uneasy over Portugual bailout, delays vote

Finland's second biggest party demanded further talks Tuesday on the Nordic country's participation in a European bailout for Portugal, adding more uncertainty to plans to rescue the debt-struck southern nation.

The EU's top monetary affairs official, meanwhile, said that Portugal will have to pay more than 5.5 percent in interest for its rescue loans _ more than what Greece has to pay for its massive bailout.

Portugal this year has seen its borrowing rates skyrocket on capital markets, leaving it at the mercy of the rescue loans. The yield on the country's 10-year bond has been above 9 percent for weeks, an unsustainable level that shows investors do not trust Portugal to pay back its longer-term debt.

The European Union and the International Monetary Fund have promised Portugal a total euro78 billion ($112 billion) in rescue loans but EU rules require that all 17 eurozone member nations approve, or at worst abstain from approving, the bailout.

That approval is being threatened by internal Finnish politics. The country's April 17 election saw a surge in support for the nationalist True Finns party, which opposes Portugal's bailout package and other help for cash-strapped eurozone members.

Finland's involvement in all major European Union decisions, including eurozone bailouts, require parliamentary approval. Incoming Prime Minister Jyrki Katainen wants that approval so he can vote for the Portuguese bailout next Monday when eurozone finance ministers meet in Brussels.

But on Tuesday, Finland's Social Democratic Party said it would not make a decision on bailout terms before more talks with Katainen, which will delay the approval vote in Finland's Parliament until Friday at the earliest.

Katainen's conservative National Coalition Party won the Finnish election but he has delayed talks on forming a new coalition government until lawmakers first decide on Portugal's bailout.

Earlier Tuesday, outgoing Prime Minister Mari Kiviniemi 3/8said her Center Party _ with 35 seats in the 200-seat Parliament _ would back the bailout. With the conservatives' 44 seats that still leaves 22 seats short of absolute majority.

In Strasbourg, EU Commissioner Olli Rehn told reporters the interest rate for Portugal's emergency aid will be "over 5 1/2 percent, but clearly below 6 percent."

Eurozone countries and the EU will fund euro52 billion ($74.7 billion) of the rescue package, with euro26 billion ($37.3 billion) coming from the International Monetary Fund. The IMF will charge between 3.25 percent and 4.25 percent for its loans.

Greece currently has to pay just above 4 percent for its euro110 billion ($158 billion) bailout, while Ireland's interest rate on its euro67.5 billion ($96.9 billion) rescue package is at 5.8 percent.

However, Rehn said that he expected a deal among eurozone states to lower Ireland's interest rate "shortly."

The European Commission has long backed lower interest rates for bailed out countries, arguing that the conditions attached to rescue loans are already so tough that no country would seek help unless it absolutely had to. Rehn said the interest rate should instead focus on making it possible for a country to actually repay its debts.

The rate demanded for Portugal's bailout isn't far off the returns that investors have recently charged for lending money in the short-term _ although the EU and IMF loans will likely come with a maturity similar to the 7 1/2 years given Ireland and Greece.

Last month, Lisbon paid 5.8 percent to raise euro1.645 billion in a 12-month bond auction.

Filipe Silva, debt manager at Portuguese financial group Banco Carregosa, said the EU's bailout fund can raise five-year loans at a rate of 2.9 percent, but will loan the cash to Portugal at a much higher rate.

"This means that nobody is going to pay our crisis for us. We'll have to foot the bill ourselves," Silva said.

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Barry Hatton in Lisbon contributed to this story.