Finnish parties strike deal on Portugal bailout

AP News
Posted: May 11, 2011 2:41 PM
Finnish parties strike deal on Portugal bailout

Finland's finance minister said Wednesday he has secured support for the country's approval of a Portugal bailout with certain conditions, removing a major hurdle for European plans to help the debt-stricken nation.

Jyrki Katainen's conservative National Coalition Party, which won the national election last month, agreed with Finland's second largest party, the Social Democrats, regarding a Finnish stance on the bailout package. With the earlier support of outgoing Prime Minister Mari Kiviniemi's Center Party, that means the rescue package for Portugal has enough backing in Parliament to be approved with a clear majority.

Katainen said the agreement includes conditions that call for Portugal to sell off assets in order to repay loans from EU countries and to begin talks with creditors over support mechanisms.

"The Finnish stand on the Portugal aid package makes it very clear that Portugal should be required to begin talks with individual investors that they keep their investments in Portugal and don't pull out," Katainen said. "It's a bit of a tightening of terms."

The bailout terms were part of a package that included support for European financial stability funds and other economic mechanisms to help cash-strapped eurozone members.

Katainen said that Finland would call for guarantees for loans from any other eurozone country that might require bailouts in the future, stress tests for European banks and a tax on banks to collect funds for possible future financial crises.

The European Union and the International Monetary Fund have promised Portugal euro78 billion ($112 billion) in rescue loans, but EU rules require approvals from all 17 eurozone member nations. That approval was threatened by internal Finnish politics after a surge in support for the nationalist, anti-bailout True Finns party in the country's April 17 election.

"This has been an exciting moment for Finns and other Europeans," Katainen told reporters. "A tight knot has been opened ... and we have managed to unravel it with good cooperation and will."

Earlier Wednesday, an international rating agency welcomed Portugal's euro78 billion bailout deal but warned the loan carries "significant implementation risk."

Standard & Poor's said the spending cuts Portugal agreed to in return for a loan from its European partners and the IMF are credible and the ailing country's funding needs should be covered through mid-2013.

The agency said planned social and economic reforms should strengthen Portugal's medium-to-long-term economic growth prospects.

However, S&P expressed concern about the uncertain outcome of next month's government election, the consequences of cuts that could accelerate an economic downturn, and the amount of support Portugal's banks may yet require.

Finland's involvement in all major European Union decisions, including eurozone bailouts, require parliamentary approval. Katainen needs that approval _ from Parliament's grand committee which meets Friday _ to be able to vote for the bailout at a meeting of eurozone finance ministers in Brussels on Monday.