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Bridging loan in doubt for Portugal

Bridging loan in doubt for Portugal

(6 April 2011 – Europe) The European Commission has said there will be no EU$15 billion (A$82.5 billion) bridging loan for Portugal, without the country first agreeing to an international debt bailout under strict conditions. Portuguese business press reported that the country’s biggest banks would stop buying government bonds, as Lisbon has to raise fresh funds by mid-June to pay back EU$9 billion (A$12.37 billion) of state debt.

Outgoing premier Jose Socrates’ caretaker government was pressed by the banks to ask the EU for a "bridging loan" ahead of elections in June.

A spokesman for EU economic and monetary affairs commissioner Olli Rehn told AFP that such a plan would go 'above and beyond what was decided by eurozone member states and therefore is not on the table'.

The spokesman stressed that aid under either the eurozone's European Financial Stability Fund (EFSF) or a smaller fund worth 60 billion Euros ($A82.5 billion) run by the commission would each require strict programs of 'economic adjustment' to be implemented in exchange for loans.

Eight of the country’s banks had been downgraded in credit rating by two or more notches; this followed the decision by the Portuguese parliament last month to reject the government’s latest austerity package, forcing Mr Socrates to resign.

It is widely believed that Lisbon will be forced to seek outside help, as Greece and Ireland had to do last year.
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