- Portugal is tussling to meet its deficit reduction targets during a deep recession
- Would have to raise a lot more cash to meet its planned exit from the bailout programme in 2014
- Alongside Ireland, Portugal is seeking more time to repay its existing bailout loans
Portugal could struggle to avoid a second international rescue even if it, alongside Ireland, is granted more time to repay its existing bailout loans by eurozone finance ministers meeting in Dublin on Friday.
Portugal, which is tussling to meet its deficit reduction targets during a deep recession, would have to raise a lot more in the two years after its planned exit from the bailout programme in 2014 than it did in pre-crisis times, according to a document seen by the Financial Times. Yet, the document says, "at this stage Portugal's market access can only be considered limited and opportunistic".
Lisbon's bailout is due to come to an end in July 2014 and the extension of maturities of its bailout loans is intended to smooth its full return to markets. But it has to raise €14.1bn next year and €15bn in 2015, whereas before the crisis it was typically raising €10bn-€12bn a year.
Ireland is also facing a big financing challenge. It needs to refinance €20bn per year from 2016-20, which is about 12 per cent of the country's projected economic output for this year. More time to repay its bailout loans would help, but Ireland has more of a record in re-entering the markets.
Jeroen Dijsselbloem, the Dutch head of the eurogroup of finance ministers, raised expectations of a deal to extend the average maturity of the bailout loans for Portugal and Ireland by seven years to ease the way for the two countries to fully re-enter debt markets.
"I hope that we will be able to finalise that tomorrow [Friday]," Mr Dijsselbloem said on a visit to Cork on Thursday.
Some European officials had pointed to German reservations as a potential obstacle to an agreement on extending the loans.
The German parliament will have to vote on any significant extension of the eurozone rescue programmes for Portugal and Ireland, with opposition members demanding reassurance that they are realistic and sustainable.
Officials in Berlin say the German government does not have any fundamental objection to measures to ease the repayment terms, but it may face tough questions in the Bundestag over the conditions attached to the programmes.
A seven-year extension would have to be approved by the full parliament, they said.
Both the Social Democratic party and the Greens set tough conditions on the rescue programme for Cyprus, which they are expected to approve next week, and they will want similar reassurances about debt sustainability in Ireland and Portugal.
"There must be a vote on any extension of the repayment period, and each case is different," one opposition budget expert said. "They cannot all be lumped together in a single vote."
Government officials played down suggestions that Germany may object to an easing of the payment terms, pointing out that Wolfgang Schäuble, the finance minister, had agreed with all his colleagues to a reassessment being carried out by the European Commission.
The SPD and Greens have been very critical of "tax dumping" in countries such as Ireland and Cyprus, which have traditionally had much lower corporate taxes than the rest of the eurozone. But a new effort to force Dublin to raise its rate from 12.5 per cent seems unlikely at such a late stage in the bailout effort.
"No one wants to force them into a new programme," the budget expert said. "The question is whether they really have advanced as far as they say. We want to be sure there is no danger of another round of bank recapitalisation."