Post date: Mar 25, 2011 1:4:57 AM
Portugal takes the spotlight of a EU summit after the resignation of its Prime Minister following a parliament rejection of his government's austerity programme.
BRUSSELS, BELGIUM (MARCH 24, 2011) REUTERS - The Portugal political crisis dominated the start of a summit of EU leaders on Thursday (March 24), with Lisbon rejecting intense pressure to seek a bailout package.
Prime Minister Jose Socrates quit on Wednesday after parliament rejected new austerity measures that his government unveiled to avoid being forced to seek EU/IMF financial assistance, as euro members Greece and Ireland did last year.Despite stepping down, Socrates came to the two-day summit. He remains adamantly opposed to requesting aid and has made it clear he intends to hold that line, at least until a new Portuguese government is formed, probably after early elections in about two months' time.
''I am here with a one and only concern: to defend Portugal and to defend the common currency and defend the European project,'' Socrates said as he arrived at the summit.
The fall of the government left Portugal in limbo and underscored political obstacles the single currency bloc faces in solving a debt crisis that has deepened over the past year.
Greek prime minister George Papandreou, whose country was the first to benefit from a bailout, said it was time to send a strong message to markets.
"The challenge now is that Europe as a whole sends a very strong and convincing message to the financial markets that it is supporting a stable euro and is supporting all euro zone countries," Papandreou said.
Only a few days ago, the two-day summit had been expected to deliver a "comprehensive package" of new measures that would reassure financial markets, but now leaders have been thrown onto the defensive and could struggle to show unity and resolve.
German Chancellor Angela Merkel, the euro zone's reluctant paymaster, said whoever formed the next Portuguese government would have to stick to the deficit reduction commitments agreed by the outgoing administration.
Euro zone leaders agreed in principle to write limits on public debt and budget deficits into national law, meeting a German condition for a stronger euro zone financial safety net. But details still need to be worked on.
The agreement or ''Competitiveness Pact'' also envisages higher retirement ages, wage growth in line with productivity gains and bank resolution schemes.
For Merkel, the ''Competitiveness Pact'' is the solution to the euro zone debt crisis.
''This will be a very important European summit where we will decide a comprehensive package for the stabilisation of the euro. Germany has worked for months to reach this day in order to have a stronger and more concrete stability and growth pact, to have a permanent safety mechanism and that includes a more flexible way to amend the treaty and to do something to improve the competitiveness of euro zone countries and of those countries who want to take part in this pact. So this is what we could decide for this comprehensive package. This would be a real progress,'' Merkel explained.
Draft conclusions drawn up ahead of the meeting showed a decision on how to increase the effective lending capacity of the bloc's current bailout fund -- the European Financial Stability Facility -- would be delayed until mid-year, probably ahead of a summit in late June.
Finland is the main obstacle to a decision, since it has dissolved parliament ahead of elections on April 17 and cannot therefore sign off on a deal.