Portuguese Prime Minister Jose Socrates is singing the praises of a $116 bailout on good terms, even though two weeks ago he denied the need for Portugal to take a loan at all. The bond market responded with a big yawn.
Please consider Portugal Says It Has Negotiated a Bailout Loan of $116 Billion
Portugal has reached agreement with the European Union and International Monetary Fund on a three-year bailout loan of 78 billion euros or about $116 billion, the caretaker Prime Minister Jose Socrates said on Tuesday.
Mr. Socrates, who now faces a snap parliamentary election on June 5, hailed the package as a victory, saying it included more lenient terms than those imposed on Greece and Ireland.
“The government has obtained a good deal. This is a deal that defends Portugal,” Mr. Socrates said.
“Some of the parameters look a little softer than expectations such as the higher deficit target and longer time line,” said Vitaly Serebryakov, currency strategist at Wells Fargo in New York.
The deal is expected to be approved at a meeting of euro zone finance ministers in mid-May, in time for the European rescue fund to raise money for Portugal by June 15, when the country needs to meet a bond redemption of 4.9 billion euros.
Good Deal or Impossible Deal?
- Portugal gets a 3-year loan
- Portugal needs to cut this year’s budget deficit to 5.9%
- Portugal deficit will shrink to 4.6% in 2012
- Portugal deficit will shrink to 3% in 2013
I have three questions:
- Does anyone possibly think Portugal can pay back $116 billion in three years?
- Does anyone in their right mind think Portugal’s budget deficit will be 3% in 2013?
- Given that Portugal is crowing about getting better terms than Ireland or Greece, how long will it take for Ireland and Greece to start bitching?
Portuguese 2-Year Government Bond Yield
I have a final bonus question.
If the bond market does not believe the deal, why should I?
Mike “Mish” Shedlock
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