Portugal heads for life after bailout

Portugal has passed the final bailout audit by IMF-EU experts, the government said on Friday, in a major step towards becoming the second eurozone rescue success story after Ireland. "The 12th evaluation has been overcome, and this opens the way to the end of the programme," Vice Prime Minister Paulo Portas told journalists, marking a big step forward from the national humiliation of near bankruptcy. "We have passed the last evaluation. Portugal will be able to win back the slice of sovereignty which it had lost," he said. Portugal is now set to emerge from the bailout on May 17, and is expected to try to finance itself on bond markets without a so-called safety net, becoming the second stricken eurozone country to recover after Ireland. In a sign that the strains of the eurozone debt crisis, which at one point threatened to break up the zone, are fading, the Spanish 10-year borrowing rate dipped below 3.0 percent on the eurozone bond market on Friday for the first time since 2005. But Portugal is still enacting the latest round of severe measures to keep its public finances within targets laid down by the International Monetary Fund, European Union and European Central Bank. Rafts of reforms tied to rescue loans pushed the country into recession and the people into severe hardship, with cuts in pay, pensions and public services. Portas said: "Portugal has done what it had to do to be able to win back its financial autonomy, and this gives sense to and makes worthwhile the sacrifices made by the Portuguese people." He said: "This programme required the Portuguese people to make very painful efforts. We have turned a page, ending what I have described as a protectorate." The auditors, who began their last audit of progress on reforms on April 22, finished their work late on Thursday after marathon negotiations. Their approval of the national accounts and progress opens the way for the release of the last payment of 2.6 billion euros of the total rescue package of 78 billion euros ($108 billion) extended in May 2011. Portugal has yet to lay out the procedures it intends to use to finance itself normally and fully on the international debt market. - Country still debt-burdened - It is expected to follow the example set by Ireland and issue bonds without having the back-up of a precautionary line of credit, a route which would be pinned on a high level of confidence that investors would subscribe substantially to buy the bonds. The government said it will decide on its strategy at a special cabinet meeting late on Sunday before eurozone finance ministers next meet on Monday. European Commission President Jose Manuel Barroso, who is Portuguese, recalled at the end of March that three years ago "Portugal was on the edge of the precipice" with scarcely 300 million euros available, and not enough to pay civil servants up to the end of 2011. The then Socialist prime minister Jose Socrates, having resisted pressure from financial markets for several months, finally gave way and on April 6, 2011, followed Greece and Ireland in appealing to the European Commission for help. Radical reforms to restructure the budget and cut public spending, and to raise efficiency in the economy, cut the public deficit from 9.8 percent of output in 2010 to 4.9 percent in 2013, but the debt shot up from 94.0 percent to 129.0 percent of gross domestic product. At the Catholic University in Lisbon, economics professor Joao Luis Cesar said: "The rapid intervention of the troika (IMF, EU and ECB) stopped the haemorrhage. But the problem is far from being dealt with because the underlying illness persists, with very high public and private debt." The unemployment rate shot up from 12.0 percent to 16.3 percent, and GDP fell by 6.0 percent over three years, although the economy is expected to recover with growth of 1.2 percent this year. "Unemployment, emigration and poverty rose but incomes and consumption fell," said Manuel Caldeira Cabral, economics professor at Minho university. "The troika is leaving a heavy legacy," he said, adding this would hobble the country's ability to honour its debts.