European leaders have agreed a restructuring of a financial bail-out fund that they hope will resolve the bloc’s debt crisis. Eurozone ministers bowed to German demands to renegotiate the time-frame for contributions to the massive fund.
But the deal was overshadowed by concerns about Portugal and a growing row that the UK may be forced to contribute to a financial bail-out. Portugal says it does not need aid, but many analysts say Lisbon is in denial.
The eurozone debt deal follows months of negotiations. “We decided a comprehensive package of economic measures… Today almost all the strands of this enterprise have come together,” European Council President Herman Van Rompuy said.
The new plan provides for the creation of a permanent fund in 2013, the European Stability Mechanism, to help troubled eurozone countries. A major sticking point was the speed with which countries had to pay cash into the 700bn-euro (£615bn) fund.
The agreement requires 80bn euros of cash provided by eurozone countries in five equal annual instalments. There will be a further 620bn euros in guarantees. Originally, eurozone finance ministers agreed to put 40bn euros into the fund immediately it is created in 2013.
There had been expectations that the two-day summit in Brussels would agree a resolution over rescuing Portugal’s stricken economy. But Portuguese ministers said they had no intention of following Greece and the Irish Republic in tapping the bail-out fund.
Even so, analysts believe it is only a matter of time before other countries are forced to provide support to the ailing economy.
‘Furious’ UK Prime Minister David Cameron refused to respond to suggestions that Britain may have to pledge billions of pounds to any emergency funding. He said: “It’s not right to comment and speculate on another country’s finances, and I’m not going to do that.” He has faced angry calls from his own Conservative MPs to refuse to contribute British money towards a bail-out.
“Can I remind you that we have just had an austerity Budget?” said former frontbencher Bernard Jenkin in the Commons on Thursday.
“Can you imagine how absolutely furious British voters would be if it turns out that the British taxpayer has to continue contributing to the bail-out of euro countries, even though we are not a member?” European Commission President Jose Manuel Barroso insisted that member states had not discussed bailing out Portugal.
“We [EU leaders] expressed confidence in the capacity of Portugal to overcome the current situation and also to find the funding the country needs in the months to come.” The financial markets are also worried as Portugal must repay a large chunk of debt to lenders in April. On Friday, Standard & Poor’s downgraded Portugal’s credit ratings by two notches to BBB and warned it could cut it further. S&P followed a two-notch cut by Fitch on Thursday – BBC