by CHRIS GRAEME [email protected]
The Portuguese government was left in an embarrassing situation last week after a tête-a-tête conversation between the Portuguese and German finance ministers was caught on tape.
Only days after the Portuguese Prime Minister Pedro Passos Coelho had insisted that Portugal would not need any kind of rescheduling, re-timetabling or adjustment to its €78 billion IMF bailout loan, his finance minister Vítor Gaspar appeared to be exploring the possibility with his German opposite number in Brussels.
Only two weeks earlier at the London School of Economics (LSE), the Portuguese minister told students and journalists in perfect English that Portugal was meeting all of its financial obligations laid down by the ‘Troika’, was not in the same position as Greece and wouldn’t need a further handout or extension on its repayment terms.
But that was not the whispered message that accidently came across in Brussels, after a private conversation, caught on microphone between him and Wolfgang Schäuble, ended up on the front page of most German and Portuguese newspapers over the weekend.
The Government, in a major damage limitation exercise, attempted to dig itself out of the hole by claiming that the conversation had been taken out of context and referred to the eventuality of the Euro crisis becoming worse over Greece, resulting in Portugal’s interest rates soaring higher to unsustainable heights, compromising her ability to keep within the ‘troika’ imposed austerity and budget contention programme.
Ironically, the conversation, where Vítor Gaspar asks his German counterpart if the European Union would be prepared to extend or ease repayment terms, had the opposite effect and sent interest rates on Portuguese sovereign bonds tumbling to sustainable levels.
The private conversation between the two ministers was caught on microphone, supposedly by accident, last Thursday by Portuguese television station TVI.
In the conversation, the German minister basically agrees that there could be an “eventual readjustment to Portugal’s financial support programme” (the financial bailout) a lot earlier than had been foreseen.
Flexibility
Brussels technocrats, however, were surprised because they didn’t have any idea that any kind of flexibility to Portugal’s programme was even on the table, particularly given official statements from the Portuguese government and the country’s apparent fulfilment of all the conditions laid down by the ‘troika’.
The Portuguese government has, time and time again at all levels, told both national and foreign media sources that it would not need any further concessions or time to meet and pay its obligations to the ‘troika’ in return for the bailout.
This had been increased in recent weeks amid speculation in the media that it was just a matter of time before Portugal needed some reinforcement to its €78 billion loan, either in conditions, payback timetables or even further credit.
During the whispered conversation, Wolfgang Schäuble can clearly be heard saying: “If in the end we need a readjustment to the (Portuguese) programme, after substantial decisions have been taken over Greece – and this is essential – but if at that time there is the need to readjust the Portuguese programme, then we’re prepared to do it.”
Vítor Gaspar can be heard replying “we would greatly appreciate that.”
In other words, the Germans are willing to relax the terms of Portugal’s bailout obligations at a time when the situation in Greece could make it more difficult for Portugal to return to the financial markets by 2013 as agreed in the memorandum of understanding between the ‘troika’ and the Portuguese government signed in May 2011.
“We have made quite substantial progress in the European framework, yes we have,” Gaspar adds to his German counterpart.
According to economic indicators from the IMF, EU and the Bank of Portugal as well as the government’s own statistics, the Portuguese economy is expected to contract by as much as 3.1% in 2012 – a clear recession.
Following the fallout from the comments, Vítor Gaspar told the newspaper Público that the German assurance was “nothing new” and that the German minister was only restating his and the EU’s stance on helping country’s that fulfilled their bailout commitments.
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