COUNCIL IMPLEMENTING DECISION on granting Union financial assistance to Portugal Proposal for a COUNCIL IMPLEMENTING DECISION on granting Union financial assistance to Portugal
Date: 2011-05-10
Institutions: European Commission
Subjects: Portugal, aid programme, economic aid, economic policy, economic recession, economic stabilisation, financial aid, financial policy

EUROPEAN COMMISSION 

Brussels, 10.5.2011 
COM(2011) 273 final 

2011/0122 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

on granting Union financial assistance to Portugal 

 
 
  
 
EXPLANATORY MEMORANDUM 

Portugal  has  recently  come  under  increasing  pressure  in  financial  markets,  reflecting  rising 
concerns  about  the  sustainability  of  its  public  finances.  Starting  from  a  structurally  weak 
economic  basis,  the  current  crisis  has  had  a  dramatic  impact  also  on  Portugal's  public 
finances,  which  ultimately  led  to  a  sharp  increase  in  sovereign  spreads.  Amidst  consecutive 
downgradings  by  credit  rating  agencies  of  Portuguese  sovereign  bonds,  the  country  became 
unable to refinance itself at rates compatible with long-term fiscal sustainability. In parallel, 
the banking sector which is heavily dependent on external financing, was increasingly cut off 
from  international  market  funding  and  has  been  increasingly  relying  on  the  Eurosystem  for 
funding. 

In  view  of  this  severe  economic  and  financial  disturbance  caused  by  exceptional 
circumstances  beyond  the  control  of  the  government,  Portugal  officially  requested  financial 
assistance  from  the  European  Union,  the  euro-area  Member  States  and  the  International 
Monetary  Fund  (IMF)  on  7  April  2011  with  a  view  to  supporting  a  policy  programme  to 
restore  confidence  and  enable  the  return  of  the  economy  to  sustainable  growth,  and 
safeguarding financial stability in Portugal, the euro area and the EU. The draft economic and 
financial adjustment programme (the "Programme") submitted by Portugal to the Commission 
and the Council aims at restoring confidence in the sovereign and in the banking sector and 
supporting  growth  and  employment.  It  foresees  comprehensive  action  on  three  fronts.  First, 
deep  and  frontloaded  structural  reforms  to  boost  potential  growth,  create  jobs,  and  improve 
competitiveness (including through fiscal devaluation). In particular, the Programme contains 
reforms of the labour market, the judicial system, network industries and housing and services 
sectors,  with  a  view 
improving 
competitiveness and facilitating economic adjustment. Second, a credible and balanced fiscal 
consolidation  strategy,  supported  by  structural  fiscal  measures  and  better  fiscal  control  over 
Public-Private-Partnerships  (PPPs)  and  State-Owned  Enterprises  (SOEs),  aiming  at  putting 
the  gross  public  debt-to-GDP  ratio  on  a  firm  downward  path  in  the  medium  term.  The 
authorities  are  committed  to  reducing  the  deficit  to  3%  of  GDP  by  2013.  Third,  efforts  to 
safeguard  the  financial  sector  against  disorderly  deleveraging  through  market-based 
mechanisms supported by back-up facilities. 

the  economy's  growth  potential, 

to  strengthening 

The programme covers the period 2011-2014. The financial package of the programme will 
cover financing needs of up to EUR 78 billion, for possible fiscal financing needs and support 
to  the  banking  system.  The  total  support  provided  by  Portugal's  European  partners  will 
amount to up to EUR 52 billion (up to EUR 26 billion from the European Union under the 
European  financial  stabilisation  mechanism  (EFSM)  established  by  Council  Regulation  No 
(EU)  407/2010  and  up  to  EUR  26  billion  from  the  European  Financial  Stability  Facility), 
while a loan from the IMF of around  EUR  26 billion under an Extended  Fund Facility  will 
also  be  provided.  Against  this  background,  the  provision  of  Union  assistance  to  Portugal 
under  the  EFSM  would  allow  supporting  the  return  of  the  economy  to  sustainable  growth, 
ensure a  properly functioning banking system and safeguard financial stability in the Union 
and in the euro area. The union assistance would be disbursed in up to 14 instalments and be 
linked to economic policy conditions. It needs to be supplied on terms and conditions similar 
to those of the IMF. 

EN 

1 

   EN 

 
2011/0122 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

on granting Union financial assistance to Portugal 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Regulation  (EU)  No  407/2010  of  11  May  2010  establishing  a 
European financial stabilisation mechanism1, and in particular Article 3(2) thereof. 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

Portugal has  recently  come  under increasing pressure in financial  markets,  reflecting 
rising  concerns  about  the  sustainability  of  its  public  finances.  Starting  from  a 
structurally weak economic basis, the current crisis has had a dramatic impact also on 
public finances, which ultimately led to a sharp increase in sovereign spreads. Amidst 
consecutive downgradings by credit rating agencies of Portuguese bonds, the country 
became  unable  to  refinance  itself  at  rates  comptabile  with  long-term  fiscal 
sustainability. In parallel, the banking sector, which is heavily dependent on external 
financing, was increasingly cut off from market funding. 

In  view  of  this  severe  economic  and  financial  disturbance  caused  by  exceptional 
circumstances  beyond  the  control  of  the  government,  Portugal  officially  requested 
financial  assistance  from  the  European  Union,  the  Member  States  whose  currency  is 
the euro, and the International Monetary Fund (IMF) on 7 April 2011 with a view to 
supporting  a  policy  programme  to  restore  confidence  and  enable  the  return  of  the 
economy to sustainable growth, and to safeguarding financial stability in Portugal, the 
euro  area  and  the  EU.  On  3  May  2011,  an  agreement  was  reached  between  the 
Government  and 
in  respect  of  a 
comprehensive three-year policy programme for the period up to mid-2014, to be laid 
down  in  a  Memorandum  of  Economic  and  Financial  Policies  (MEFP)  and  a 
Memorandum  of  Understanding  on  Specific  Economic  Policy  Conditionality  (MoU) 
This policy programme was supported by the two largest opposition parties. 

joint  Commission/IMF/ECB  mission 

the 

(3) 

This  draft  economic  and  financial  adjustment  programme  (the  "Programme") 
submitted by Portugal to the Commission and the Council aims at restoring confidence 
in the sovereign and in the banking sector and supporting growth and employment. It 
foresees  comprehensive  action  on  three  fronts.  First,  deep  and  frontloaded  structural 

1 

OJ L 118, 12.5.2010, p. 1. 

EN 

2 

   EN 

 
                                                 
(4) 

(5) 

reforms to boost potential growth, create jobs, and improve competitiveness (including 
through  fiscal  devaluation).  In  particular,  the  Programme  contains  reforms  of  the 
labour  market,  the  judicial  system,  network  industries,  and  housing  and  services 
sectors,  with  a  view  to  strengthening  the  economy's  growth  potential,  improving 
competitiveness and facilitating economic adjustment. Second, a credible and balanced 
fiscal consolidation strategy, supported by structural fiscal measures and better fiscal 
control over Public-Private-Partnerships (PPPs) and State-Owned Enterprises (SOEs), 
aiming at putting the gross public debt-to-GDP ratio on a firm downward path in the 
medium term. The authorities are committed to reducing the deficit to 3% of GDP by 
2013.  Third,  efforts  to  safeguard  the  financial  sector  against  disorderly  deleveraging 
through market-based mechanisms supported by back-up facilities. 

Under  the  Commission's  current  projections  for  nominal  GDP  growth  (-1.2 % 
in 2011, -0.5 %  in  2012, 2.5 %  in  2013  and  3.9 %  in  2014),  the  fiscal  targets  are 
consistent with a path for the debt-to-GDP ratio of 101.7 % in 2011, 107.4 % in 2012, 
108.6%  in  2013  and  107.6%  in  2014.  The  debt-to-GDP  ratio  would  therefore  be 
stabilised  in  2013  and  be  placed  on  a  declining  path  thereafter,  assuming  further 
progress in the reduction of the deficit. Debt dynamics are affected by several below-
the-line  operations,  which  are  projected  to  increase  the  debt-to-GDP  ratio  by  1¾ 
percentage  points  (pps.)  of  GDP  in  2011  and  by  ¾  pps  per  year  between  2012  and 
2014. These include sizeable acquisitions of financial assets, notably for possible bank 
recapitalisation  and  financing  to  State-Owned  Enterprises  amounting  to  ½%  of  GDP 
per  year  between  2011  and  2014.  On  the  other  hand,  privatisation  proceeds  totalling 
around 3% of GDP up to the year 2013 will support debt reduction efforts. 

The assessment by the Commission, in liaison with the European Central Bank (ECB) 
and  together  with  the  International  Monetary  Fund  (IMF),  is  that  Portugal  needs 
financing  of  a  total  amount  of  EUR 78 billion  (78 000 million)  over  the  period  from 
June  2011  to  mid  2014.  Notwithstanding  the  significant  fiscal  adjustment,  the 
financing gap for the sovereign may amount to EUR 63 billion over the period of the 
Programme. This assumes roll-over rates for maturing long-term debt of 0 % until the 
first half of 2013 and 100 % thereafter. Portugal is assumed to be able to roll-over its 
existing stock of short-term debt, while the programme also provides for a financing 
buffer  in  case  of  unexpected  deviations  from  the  Commission's  baseline  financing 
scenario.  The  financial  sector  strategy  contained  in  the  programme  to  restore 
confidence in the Portuguese banking system on a sustainable basis requires banking 
groups to bring their core tier 1 capital ratio to 9% by the end of 2010 and 10% by the 
end  of  2012.  The  programme  contains  a  banking  support  scheme  of  up  to  EUR  12 
billion  to  provide  the  necessary  capital  in  case  market  solutions  cannot  be  found. 
Actual  funding  needs  may,  however,  be  substantially  lower,  in  particular  if  market 
conditions improve significantly and no severe unexpected banking losses materialise 
during the period of the Programme. 

(6) 

The Programme would be financed through contributions from external sources. The 
Union's assistance to Portugal would reach up to EUR 52 billion under the European 
Financial  Stabilisation  Mechanism  (EFSM)  established  by  Council  Regulation  (EU) 
No 407/2010 and from contributions from the European Financial Stability Facility. In 
addition, Portugal has requested a loan of SDR [23.44664 billion] (equivalent to EUR 
26  billion  at  the  exchange  rate  of  [5  May  2011))  from  the  IMF  under  an  Extended 
Fund  Facility.  The  support  from  the  EFSM  needs  to  be  supplied  on  terms  and 

EN 

3 

   EN 

 
conditions  similar  to  those  of  the  IMF.  The  Union  financial  assistance  should  be 
managed by the Commission. 

(7) 

(9) 

The Council should review on a regular basis the economic policies implemented by 
Portugal. (8)  The  specific  economic  policy  conditions  agreed  with  Portugal  should 
be 
in  a  Memorandum  of  Understanding  on  Specific  Economic 
Conditionality  (the  "Memorandum  of  Understanding").  The  detailed  financial  terms 
should be laid down in a Loan Facility Agreement.  

laid  down 

The Commission should verify at regular intervals that the economic policy conditions 
attached to the assistance are fulfilled, through missions and regular reporting by the 
Portuguese authorities.  

(10)  Throughout  the  implementation  of  the  Programme,  the  Commission  should  provide 

additional policy advice and technical assistance in specific areas. 

(11)  The  operations  which  the  Union  financial  assistance  helps  to  finance  must  be 
compatible  with  Union  policies  and  comply  with  Union  legislation.  Interventions  in 
support of financial institutions must be carried out in accordance with Union rules on 
competition.  

(12)  The  assistance  should  be  provided  with  a  view  to  supporting  the  successful 

implementation of the Programme. 

HAS ADOPTED THIS DECISION:  

Article 1 

1. 

2. 

3. 

The Union shall make available to Portugal a loan amounting to a maximum of EUR 
26 billion, with a maximum average maturity of 7.5 years. 

The financial assistance shall be made available during three years starting from the 
first day after the entry into force of this Decision. 

The  Union  financial  assistance  shall  be  made  available  by  the  Commission  to 
Portugal in a maximum of 14 instalments. An instalment may be disbursed in one or 
several  tranches.  The  maturities  of  the  tranches  under  the  first  instalment  may  be 
longer than the maximum average maturity referred to in paragraph 1. In such cases, 
the maturities of further tranches shall be set so that the maximum average maturity 
referred to in paragraph 1 be achieved once all instalments have been disbursed. 

The first instalment shall be released subject to the entry into force of the Loan 
4. 
Agreement  and  the  Memorandum  of  Understanding.  Any  subsequent  loan  releases 
shall  be  conditional  upon  a  favourable  review  by  the  Commission,  in  consultation 
with the ECB, of Portugal's compliance with the general economic policy conditions 
as defined by this Decision and the Memorandum of Understanding. 

5. 

Portugal shall pay the cost of funding of the Union for each tranche plus a margin of 
215 basis points, which results in conditions similar to those of the IMF support. 

EN 

4 

   EN 

 
6. 

7. 

8. 

1. 

2. 

3. 

4. 

1. 

2. 

3. 

In addition, costs referred to in Article 7 of Regulation No 407/2010 shall be charged 
to Portugal. 

If  required  in  order  to  finance  the  loan,  the  prudent  use  of  interest  rate  swaps  with 
counterparties  of  the  highest  credit  quality  and  advanced  borrowing  shall  be 
permitted. 

The  Commission  shall  decide  on  the  size  and  release  of  further  instalments. 
The Commission shall decide on the size of the tranches.  

Article 2 

The  assistance  shall  be  managed  by  the  Commission  in  a  manner  consistent  with 
Portugal's undertakings.  

The  Commission,  in  consultation  with  the  ECB,  shall  agree  with  the  Portuguese 
authorities  the  specific  economic  policy  conditions  attached  to  the  financial 
assistance  as  set  out  in  Article 3.  Those  conditions  shall  be  laid  down  in  a 
Memorandum of Understanding to be signed by the Commission and the Portuguese 
authorities consistent with the undertakings referred to in paragraph 1. The detailed 
financial terms shall be laid down in a Loan Facility Agreement to be concluded with 
the Commission. 

The Commission shall verify at regular intervals that the economic policy conditions 
attached  to  the  assistance  are  fulfilled,  and  report  to  the  Economic  and  Financial 
Committee  before  disbursement  of  each  instalment.  To  this  end,  the  Portuguese 
authorities shall cooperate in full with the Commission and the ECB, and shall place 
all  the  necessary  information  at  their  disposal.  The  Commission  shall  keep  the 
Economic  and  Financial  Committee  informed  of  possible  refinancing  of  the 
borrowings, or restructuring of the financial conditions. 

Portugal  shall  adopt  and  implement  additional  consolidation  measures  to  ensure 
macro-financial  stability,  in  case  such  measures  will  be  necessary  during  the 
programme  of  assistance.  The  Portuguese  authorities  shall  consult  the  Commission 
and the ECB in advance of the adoption of any such additional measures. 

Article 3  

The economic and financial adjustment programme (the "Programme") prepared by 
the Portuguese authorities is hereby approved. 

The disbursement of each instalment after the first one shall be made on the basis of 
a satisfactory implementation of the Programme and, more particularly, the specific 
economic policy conditions laid down in the Memorandum of Understanding. These 
shall  include,  inter  alia,  the  measures  provided  for  in  paragraphs  4  to  8  of  this 
Article. 

The general government deficit shall not exceed EUR 10,068 million (equivalent to 
5.9%  of  GDP  based  on  current  projections)  in  2011,  EUR  7,645  million  (4.5%  of 
GDP)  in  2012  and  EUR  5,224  million  (3.0%  of  GDP)  in  2013,  in  line the  EDP 

EN 

5 

   EN 

 
4. 

5. 

requirements. For the calculation of this deficit, the possible budgetary costs of bank 
support  measures  in  the  context  of  the  government's  financial  sector  strategy  shall 
not be taken into account. Consolidation shall be achieved by means of high-quality 
permanent measures and minimising the impact on vulnerable groups.  

Portugal shall adopt the measures specified in paragraphs 5 to 8 before the end of the 
indicated  year,  with  exact  deadlines  for  the  years  2011-2014  being  specified  in  the 
Memorandum  of  Understanding.  Portugal  shall  stand  ready  to  take  additional 
consolidation measures to reduce the deficit to below 3 % of GDP by 2013 in case of 
deviations from targets. 

Portugal  shall  adopt  the  following  measures  before  the  end  of  2011,  in  line  with 
specifications in the Memorandum of Understanding: 

(a)  Portugal shall implement fully the fiscal consolidation measures foreseen in the 
2011  budget  amounting  to  around  EUR  9  billion  and  additional  measures 
introduced  before  May  2011  worth  more  than  EUR  400  million.  These 
measures  aim  at  a  reduction  of  the  general  government  deficit  within  the 
timeframe  referred  to  in  paragraph 3.  The  revenue  measures  foreseen  in  the 
2011 budget, worth EUR 3.4 billion, shall be complemented by an increase in 
social  contributions  via  stricter  inspection  and  compulsory  contribution  of 
trainees. In addition to the expenditure measures foreseen in the 2011 budget, 
additional measures including savings in the health sector, lower subsidies for 
State-Owned  Enterprises  (SOEs),  and  reductions  in  social  transfers  shall  be 
implemented.  

(b)  Portugal  shall  adopt  measures  reinforcing  a  credible  budgetary  strategy  and 
strengthening  the  budgetary  framework.  Portugal  shall  fully  implement  the 
measures foreseen in the new Budgetary Framework Law, including setting up 
a  medium-term  budgetary  framework,  prepare  a  thorough  fiscal  strategy 
analysis  and  establish  an  independent  Fiscal  Council.  The  local  and  regional 
financing frameworks shall be aligned to the new Budgetary Framework Law. 
Portugal shall step up reporting and monitoring of public finances, including in 
particular  arrears.  Portugal  shall  start  the  systematic  and  regular  analysis  of 
fiscal  risks  as  part  of  the  budget  process,  including  the  risks  stemming  from 
Public Private Partnerships (PPPs) and SOEs.  

(c)  Portugal shall adopt the first batch of measures aimed at strengthening labour 
market functioning by limiting severance payments and making working time 
arrangements more flexible.  

(d) 

In  the  energy  sector,  Portugal  shall  take  measures  to  facilitate  entry,  promote 
the  establishment  of  the  Iberian  gas  market  and  review  the  support  and 
compensation  schemes  for  production  of  electricity.  For  other  network 
industries,  in  particular  transport,  telecommunications  and  postal  services, 
Portugal  shall  adopt  additional  measures  to  promote  competition  and 
flexibility.  

(e)  Portugal  shall  take  urgently  action  to  foster  competition  and  the  economy's 
adjustment capacity. This includes the abolition of special rights of the State in 

EN 

6 

   EN 

 
 
companies,  a  revision  of  competition  law  to  make  it  more  effective,  lighter 
requirements for establishment and cross-border provision in services sectors.  

(f) 

Portugal shall improve practices and rules for public procurement contributing 
to  a  more  competitive  business  environment  and  to  more  efficient  public 
spending.  

6. 

Portugal shall adopt the following measures during 2012, in line with specifications 
in the Memorandum of Understanding: 

(a)  The 2012 budget shall include a budget neutral recalibration of the tax system 

with a view to lowering labour costs and boosting competitiveness. 

(b)  The budget for 2012 shall include fiscal consolidation measures amounting to 
at  least  EUR 5.1 billion  and  aiming  at  a  reduction  of  the  general  government 
deficit within the timeframe referred to in Article 3(3).  

(c)  The  budget  shall  provide  for  a  reduction  of  expenditure  in  2012  of  at  least 
EUR 3.5 billion  including  a  comprehensive  reorganisation  of  the  central 
administration,  eliminating  duplicities  and  other  inefficiencies;  reducing  the 
number  of  municipalities  and  parishes;  cuts  in  education  and  health,  lower 
transfers  to  regional  and  local  authorities,  reduction  of  public  sector 
employment;  adjustments  in  pensions;  and  reductions  in  capital  expenditure 
and in other expenditure as set out in the Programme.  

(d)  On  the  revenue  side,  the  budget  shall  include  revenue  measures  totalling 
around  EUR 1.5 billion  in  a  full  year  including,  inter  alia:  broadening  the 
corporate  and  personal  income  tax  bases  by  reducing  tax  deductions  and 
special  regimes;  ensuring  the  convergence  of  personal  income  tax  deductions 
applied  to  pensions  and  labour  income;  changes  in  property  taxation  by 
substantially  reducing  exemptions;  broadening  VAT  bases  by  reducing 
exemptions and rearranging the lists of goods and services subject to reduced, 
intermediate and higher rates; and, an increase in excises. These measures shall 
be complemented by action to fight tax evasion, fraud and informality.  

(e)  Portugal shall put in place a strengthened legal and institutional framework for 
assessing  fiscal  risks  prior  to  engaging  in  a  PPP  contract.  Similarly,  Portugal 
shall  adopt  a  law  to  regulate  the  creation  and  the  functioning  of  SOEs  at  the 
central, regional and local levels. Portugal shall not engage into any new PPP 
contract  or  create  a  SOE  until  the  reviews  and  the  new  legal  structure  are  in 
place. 

(f) 

Portugal shall modernise the revenue administration by creating a single entity, 
reducing 
the  number  of  municipal  offices  and  addressing  remaining 
bottlenecks in the tax appeal system. 

(g)  Portugal  shall  introduce  legislation  to  reform  the  unemployment  insurance 
system,  including  a  reduction  of  the  maximum  duration  of  unemployment 
insurance benefits to 18 months, a cap on unemployment benefits to 2.5 times 
the social support index, a reduction in benefits over the unemployment spell, a 
reduction  of  the  minimum  contributory  period,  and  an  extension  to  certain 

EN 

7 

   EN 

 
categories  of  self-employed.  Active 
strengthened after a review of current practices and an agreed action plan. 

labour  market  policies  shall  be 

(h)  The  system  of  severance  payments  shall  be  brought  in  line  with  practices  in 
other  EU  Member  States,  based  on  the  specification  in  the  Memorandum  of 
Understanding. 

(i)  Regulations  on  overtime  pay  shall  be  eased  and  increased  flexibility  of 
working  time  arrangements  introduced  in  line  with  the  Memorandum  of 
Understanding. 

(j) 

Portugal  shall  promote  wage  developments  consistent  with  the  objectives  of 
fostering  job  creation  and  improving  firms'  competitiveness  with  a  view  to 
correct macroeconomic imbalances. Any increase in minimum wages will take 
place only if justified by economic and labour market developments. Measures 
shall be taken to address weaknesses in the current wage bargaining schemes, 
including legislation to redefine the criteria and modalities of the extension of 
collective agreements and to facilitate firm-level agreements.  

(k)  An  action  plan  shall  be  prepared  to  improve  the  quality  of  secondary  and 

vocational education. 

(l)  The functioning of the judicial system shall be improved by implementing the 
measures  proposed  under  the  Judicial  Reform  Map  and  conducting  and 
auditing  of  the  backlog  cases  in  order  to  target  measures  to  eliminate  court 
backlog and foster alternative dispute settlements.  

(m)  The competition framework shall be improved by reinforcing the independence 
and  resources  of  the  national  regulator  authorities.  Professional  services  shall 
be  liberalised  by  improving  the  professional  qualification  framework  and  by 
eliminating restrictions on regulated professions.  

(n)  Regulated tariffs in electricity and gas retail markets shall be eliminated.  

7. 

Portugal shall adopt the following measures during 2013, in line with specifications 
in the Memorandum of Understanding: 

(a)  The  2013  budget  shall  include  fiscal  consolidation  measures  amounting  to  at 
least  EUR 3.2 billion  aiming  at  a  reduction  of  the  general  government  deficit 
within  the  timeframe  referred  to  in  Article  3(3).  In  particular,  on  the 
expenditure side the budget shall provide for a reduction in expenditure in 2013 
of  at  least  EUR 2.5 billion,  including:  reducing  expenditures  in  the  central 
local  and  regional 
administration,  education  and  health; 
authorities;,  reduction  of  the  number  of  employees  in  the  public  sector;  and, 
lower costs by SOEs.  

transfers 

to 

(b)  The  budget  shall  include  revenue  measures  including  notably  further 
broadening  of  corporate  and  personal  income  tax  bases,  higher  excises  taxes 
and  changes  in  property  taxation,  yielding  close  to  EUR  0.8  billion  of 
additional  revenue.Portugal  shall  improve  the  business  environment  by 
reducing  administrative  burden  through  the  extension  to  all  sectors  of  the 
economy  of  simplification  reforms  (Points  of  Single  Contact  and  Zero 

EN 

8 

   EN 

 
authorisation  projects);  and  by  alleviating  SME's  credit  constraints  including 
with the implementation of Directive 2011/7/EU on combating late payment in 
commercial transactions.  

(c)  Portugal shall complete the elimination of the court backlog.  

8. 

With a view to restoring confidence in the financial sector, Portugal shall adequately 
recapitalise and orderly deleverage its banking sector and bring closure to the Banco 
Português de Negócios case. In that regard, Portugal shall develop and agree with the 
European Commission, the ECB and the IMF a strategy for the future structure and 
functioning of the Portuguese banking groups so that financial stability is preserved. 
In particular, Portugal shall: 

(a) 

(b) 

(c) 

(d) 

(e) 

facilitate the issuance of government guaranteed bank bonds for an amount of 
up to EUR 35 billion, including the existing package of support measures; 

announce by end-May 2011 increases in minimum core tier 1 capital adequacy 
ratio  to  9  percent  by  end-2011  and  10  percent  by  end-2012,  with  banks 
required to present by end-June 2011 plans on how they intend to comply with 
these requirements; 

indicate clear periodic target leverage ratios for banks and step up the solvency 
and deleveraging assessment framework during 2011; 

ensure  that  the  state-owned  Caixa  Geral  de  Depositos  will  be  streamlined  to 
increase  the  capital  base  of  its  core  banking  arm  as  needed  and  launch  a 
process  to  sell  Banco  Português  de  Negócios  on  an  accelerated  schedule.  To 
this end, Portugal shall submit a new plan to the EC for approval under State 
aid control rules; 

amend by end-2011 legislation concerning bank and firm resolution as well as 
concerning  the  Deposit  Guarantee  Fund  and  the  Guarantee  Fund  for  Mutual 
Agricultural Credit Institutions, with a view to protect depositors and facilitate 
restructuring. 

9. 

In order to ensure the smooth implementation of the Programme's conditionality, and 
to  help  to  correct  imbalances  in  a  sustainable  way,  the  Commission  shall  provide 
continued  advice  and  guidance  on  fiscal,  financial  market  and  structural  reforms. 
Within the framework of the assistance to be provided to Portugal, together with the 
IMF and  in liaison with the ECB, it shall periodically  review  the  effectiveness  and 
economic and social impact of the agreed measures, and shall recommend necessary 
corrections with a view to enhancing growth and job creation, securing the necessary 
fiscal  consolidation  and  minimising  harmful  social  impacts,  particularly  regarding 
the most vulnerable members of Portuguese society. 

Portugal  shall  open  a  special  account  with  the  Bank  of  Portugal  for  the  management  of  the 
Union financial assistance.  

Article 4 

EN 

9 

   EN 

 
This Decision is addressed to Portugal.  

Article 5 

Article 6 

This Decision shall be published in the Official Journal of the European Union. 

Done at Brussels,  

For the Council 
The President 

EN 

10 

   EN 

 
 
 
BUDGETARY IMPACT STATEMENT 

(cf. Article 16 of the Internal Rules)  

POLICY AREA: TITLE 01 – ECONOMIC AND FINANCIAL AFFAIRS 
ACTIVITY: FINANCIAL OPERATIONS AND INSTRUMENTS 
TITLE OF ACTION: EUROPEAN FINANCIAL STABILITY MECHANISM - FINANCIAL 
ASSISTANCE TO PORTUGAL 

1. 

NAME OF THE PROPOSAL: BUDGET HEADING CONCERNED AND TITLE 

01.040103 European Union guarantee for Union borrowings raised for financial assistance 
under the European financial stabilisation mechanism 

2. 

LEGAL BASIS: 

Council Regulation N° 407/210.  

3. 

OVERALL FIGURES FOR THE FINANCIAL YEAR (IN EUROS) 

This  item  constitutes  the  structure  for  the  guarantee  provided  by  the  European  Union.  It 
will enable the Commission to service the debt (principal, interest and other costs) should 
the debtor (Portugal) default.  

The budget entry ("p.m.") reflecting the budget guarantee will be activated only in the case 
of an effective call on the guarantee. It is expected that normally the budget guarantee will 
not be called.  

CA 

3a – Current year 

Not applicable 

Initial appropriation for the financial 
year (budget) 

Transfers 

Additional appropriation  

Total appropriation 

Appropriations  already  set  aside  by 
another work programme 

Balance available 

Amount for the action proposed 

EN 

11 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3b – Carry overs 

Not applicable 

Carry-overs 

Appropriations  already  set  aside  by 
another work programme  

Balance available 

Amount for the action proposed 

3c – Next financial year 

Not applicable 

Initial appropriation for the 
financial year (budget) 

Transfers 

Additional appropriation 

Total appropriation 

Appropriations  already  set 
aside  by  another  work 
programme 

Balance available 

Amount 
proposed 

for 

the  action 

CA 

CA 

p.m. 

p.m. 

4. 

DESCRIPTION OF THE ACTION 

The proposed medium-term financial assistance to Portugal consists of a Union loan (to be 
financed by Union borrowings in the international capital markets) in the amount of EUR 
26  billion.  It  will  be  provided  in  the  context  of  an  international  financing  package.  In 
particular, loans from Portugal's EU partner countries would include contributions from the 
European Financial Stability Facility (EUR 26 billion). In addition, Portugal has requested 
a loan from the International Monetary Fund of SDR [ ] billion (around EUR 26 billion) 
under  an  Extended  Fund  Facility.  The  Union  financial  support  to  Portugal  is  intended  to 
support  the  return  of  the  economy  to  sustainable  growth  and  ensuring  a  properly 
functioning  banking  system.  At  the  same  time,  this  assistance  makes  a  contribution  to 
safeguarding financial stability in the EU and in the euro area, by restoring confidence.  

EN 

12 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Union borrowings raised on the capital markets or from financial institutions for the 
purpose of extending the loan to Portugal are covered by the Union budget. The amount in 
principal of loans which will be granted to Portugal amounts to EUR 26 billion. 

The  structure  for  the  guarantee  provided  by  the  European  Union  budget  will  enable  the 
Commission to service the debt should Portugal default. 

In  order  to  honour  its  obligations,  the  Commission  may  draw  on  its  cash  resources  to 
service the debt provisionally. In this case, Article 12 of Council Regulation (EC, Euratom) 
No  1150/2000  of  22  May  2000  implementing  Decision  2007/436/EC,  Euratom  on  the 
system  of  the  European  Communities’  own  resources  (OJ  L  130,  31.5.2000,  p. 1)  will 
apply. 

5. 

METHOD OF CALCULATION ADOPTED 

Not applicable. 

6. 

PAYMENT SCHEDULE (IN EURO) 

Not applicable. 

Heading 

Appropriations 

Payments 

Year n 

Year n+1  Year n+2  Year n+3 

Subsequent 
financial 
years 

Year n 

Year n+1 

Year n 

Year n+1   

Total 

EN 

13 

   EN