Brussels gets new credit line ready for Portugal

“Soft bailout” prepared to cushion country’s landing when troika rescue package expires in 2014

The European Commission is preparing a second round of financial help for Portugal — and may do the same for Ireland — given that it will be very difficult for the Southern European country to secure funding in the bond markets next year, when the current rescue program expires.

The austerity measures that Portugal has had to introduce in exchange for bailout funds have failed to lift the Portuguese economy back into growth, and last week saw several high-profile government resignations due to the ongoing situation. The recession and the unemployment rate in Portugal have both worsened, and the markets are unforgiving: bond yields have shot up, in line with rising doubts about the country’s political stability and prospects for recovery.

As such, two high-up sources from the EC have confirmed that Brussels is already in talks with Lisbon in order to “get a precautionary credit line” in place for next year. The soft bailout would work as a preventive measure, to ensure that the end of the current bailout program, in May 2014, does not end up being a painful process. The current package is being overseen by the so-called troika, comprising the IMF, EC and European Central Bank. Both the IMF and Brussels have indicated that they do not wish to continue their cooperation.

The plan is a sign that Brussels is determined not to abandon Lisbon, which has done everything that has been demanded of it so far and more, as well as showing that the EC is going to help the government of Passos Coelho in his attempts to reduce the unease that exists between European states and investors.

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