European and IMF officials startrf tough talks with Portugal today on the scale and modalities of a bail-out, as a Finnish anti-EU party's election success cast doubt on its viability.
Negotiations on the sum and payback conditions in a deal expected to involve tens of billions of euros follow an evaluation mission last week to Lisbon by the European Commission, the European Central Bank and the International Monetary Fund.
The government of Prime Minister Jose Socrates government fell last month when parliament rejected an austerity plan, forcing Lisbon to bow to market pressure and seek an European Union-IMF bail-out.
But on the other side of the continent, Finland's nationalist True Finns cast a shadow over the talks when it became the third biggest party in elections yesterday, securing a likely role in government and possibly sending the parliament lurching right.
Brussels is now waiting to see whether Finland will back or veto EU bailouts to debt-ridden EU states - a concept the True Finns flatly rejects.
European Commission head Jose Manuel Barroso, a former Portuguese prime minister, has stressed that EU and IMF aid, expected to total €80 billion, 'will be a medium-term programme with strict conditions'.
The negotiations could last a week, a spokesman for the European Commission in Portugal said.
The European Commission delegation will be headed by German Juergen Kroeger while his compatriot Rasmus Rueffer will lead the European Central Bank team.
The IMF side will be headed by Dane Poul Thomsen, who was involved in the Greek bail-out package a year ago while the Portuguese team will be co-headed by Finance Minister Fernando Teixeira dos Santos and Pedro Silva Pereira, the spokesman of the caretaker goverment.
The EU and the IMF have both warned that Lisbon will have to implement more public spending cuts, tax rises and far-reaching privatisation to secure its lifeline. The visiting teams will hold talks tomorrow with employers' associations and labour unions.
The debt rescue, finally agreed to after months of agonising efforts to avoid having to call for help, is controversial in Portugal where many view it as a national humiliation. Socrates' government had adopted a series of unpopular spending cuts, tax hikes and economic reforms in an effort to get the public deficit back down to the EU norm of 3% of GDP by 2012.
The rejected plan was supposed to reduce the deficit to 4.6% in 2011, but it ballooned to 8.6% of GDP last year - way over the 7.3% target. Portugal also has a total debt of €159.5 billion.
Political parties have to agree on a new programme of austerity measures before early polls on June 5. The country, among the poorest in the EU, has to repay about €5 billion in debt by June 15 and most analysts believe it must have the EU-IMF rescue loans agreed by then if it is to avoid default.
Markets are demanding ever higher rates of interest from Lisbon for fresh cash to cover its maturing debt.
