Bail-out for Portugal is approved

16 May 2011 Last updated at 18:19 GMT Debt-hit Greece was bailed out by the EU and IMF a year ago Eurozone financial leaders have unanimously approved a 78bn euro (?68bn; $110bn) bail-out for Portugal.

The group, which has been meeting in Brussels, said the loan was to "safeguard financial stability in the euro area and the EU as a whole".

The meeting has been overshadowed by the arrest of IMF boss Dominique Strauss-Kahn in New York, on charges of the sexual assault of a hotel maid.

He had been due to attend the discussions.

The loan will be split three ways between the European Financial Stabilisation Mechanism (EFSM), the European Financial Stability Facility (EFSF), and the IMF. Each will contribute 26bn euros.

In return Portugal, which formally requested the loan last month, has agreed to reform its health care system and pursue an "ambitious privatisation programme".

'Significant role'

Analysts were worried about the absence Mr Strauss-Kahn's absence from the meeting.

"The leadership vacuum at the IMF comes at a highly inopportune time for Europe, which is teetering on the brink of a full-blown debt crisis," said Eswar Prasad, a professor of international economics at Cornell University and a former IMF official.

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His departure would prevent him brokering a deal between France and Germany on how, and how often, to bail out Greece and other countries in crisis ”

End Quote Stephanie Flanders BBC Economics editor Lucinda Creighton, the Irish Republic minister for Europe, told broadcaster RTE that Mr Strauss-Kahn was "somebody who has had a significant role in the events of recent months in relation to the Irish bail-out".

However, she added, "it is not unusual for the head of the IMF to be absent from a meeting like this and I don't think it'll really have any impact".

The eurozone meeting is also expected to discuss the situation in Greece, and whether the country will need additional help to deal with its debts.

Some European leaders are unhappy at what they perceive as limited Greek efforts to raise money by selling government property.

Dutch Finance Minister Jan Kees de Jager said he was not convinced Greece should get more money at present from the EU and IMF.

"It has to perform a lot more actions: reforms, austerity packages, the privatisation programme should be definitely rolled out by Greece, and then we will make up our minds," he said.

Continue reading the main story Gavin Hewitt BBC Europe editor

At a sensitive moment for the eurozone crisis, Dominique Strauss-Kahn will be badly missed.

He was intimately involved in the detail of the bail-outs for Greece, the Republic of Ireland and Portugal.

He personally handled many of the negotiations and micro-managed some of the terms and conditions.

As a former French finance minister, he personally knew most of the key leaders and officials managing the crisis.

He passionately believed in the survival of the euro and, under him, the IMF was fully committed to finding a way out of Europe's debt crisis.

Although his deputy John Lipsky was the case officer for the bail-outs, he is unlikely to be such an influential figure.

If and when Mr Strauss-Kahn is replaced, the leadership of the IMF may well not go to a European, and officials in Brussels are already anxious about this.

"But at the moment it seems that Greece is not on the right track - it should be first brought on the right track before any other decision is contemplated."

Debt-strapped Greece was bailed out a year ago by the EU and IMF to the tune of 110bn euros ($157bn; ?93bn) euros.

Since then it has imposed a series of financial cuts and austerity measures to try to balance its books.

On Friday, EU Economic and Monetary Affairs Commissioner Olli Rehn said Greece must take additional steps to consolidate public finances because it was missing its deficit reduction targets.

The country has a 327bn euros debt pile, or nearly 150% of its economic output.

Germany provided a large chunk of the Greek bail-out cash and wants to see stringent conditions applied before backing any new aid.

European Central Bank governing council member Ewald Nowotny told German business daily Handelsblatt that Greece may be entitled to receive further loans.

"But you have to grant them under very strict conditions," he added.

Many analysts believe that Greece's financial troubles are so deep that a Greek default on its debts appears inevitable.

"The policy response [to the debt crisis] continues to be ad hoc, behind the curve," RBS chief European economist Jacques Cailloux said.

However, the European Central Bank appears determined to prevent any default as such a move could undermine the euro.

The euro fell to a seven-week low against the dollar and a two-month low against the yen before the meeting.

The meeting will also check the latest progress of the Irish Republic in dealing with its debt crisis.

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