Portugal agrees EU/IMF bailout, Greece deal teeters

Portugal agreed a three-year 78-billion-euro ($116 billion) bailout with the European Union and IMF, making it the third euro zone country in a year, after Ireland and Greece, to need financial help.

Giving few details except that Portugal has more time to meet budget deficit targets than previously promised by the government, caretaker Prime Minister Jose Socrates warned:

"There are no financial assistance programmes that are not demanding."

The deal is more complicated than Ireland's 85 billion euro package, agreed last November, or Greece's 110 billion euro programme agreed on May 2, 2010 -- a deal that looks increasingly inadequate to shore up Greece's finances.

Portugal for its part has high public sector debts, banking problems and structural economic shortcomings, with rigid labour markets and a costly state pension system.

"The Portuguese bailout is certainly not good enough," said Greg Salvaggio, vice president for capital markets at Tempus Consulting in Washington.

"What it is very similar to the situation in Greece last year where it's simply a band-aid. If you look at the plan that was put in place for Greece, for Ireland, and now Portugal, none of them really addressed the underlying fundamentals, which have caused the problem," Salvaggio said.

Portugal is also set to hold a parliamentary election on June 5 after the previous government collapsed when its plans for austerity measures were voted down by parliament.

The political limbo means the EU and IMF have negotiated a deal with politicians looking for re-election. The caretaker government will have to win the endorsement of major opposition parties before agreeing any bailout deal.

But even then, there is the risk that any package will not be approved by all 17 countries in the euro zone.

Finland's likely next prime minister split the issue of EU bailouts from talks on forming a government with the True Finns and the Social Democrats, both against the bailout.

Jyrki Katainen, whose National Coalition party won last month's election, said he would delay formation of a government and hoped instead to secure informal parliamentary approval for the bailout before EU ministerial meetings on May 16 and 17.