HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN"L 159/88
EN
Official Journal of the European Union
17.6.2011
DECISIONS
COUNCIL IMPLEMENTING DECISION
of 30 May 2011
on granting Union financial assistance to Portugal
(2011/344/EU)
THE COUNCIL OF THE EUROPEAN UNION,
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
Having regard to the Treaty on the Functioning of the European
policy programme was supported by the two largest
Union,
opposition parties.
Having regard to Council Regulation (EU) No 407/2010 of
11 May 2010 establishing a European financial stabilisation
(3) This
draft
economic
and
financial
adjustment
programme
mechanism (
(‘the Programme’) submitted by Portugal to the

1 ), and in particular Article 3(2) thereof,
Commission and the Council aims at restoring
confidence in the sovereign and in the banking sector
and supporting growth and employment. It foresees
Having regard to the proposal from the European Commission,
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
Whereas:
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
(1) Portugal
has
recently
come
under
increasing
pressure
in
and balanced fiscal consolidation strategy, supported by
financial markets, creating rising concerns about the
structural fiscal measures and better fiscal control over
sustainability of its public finances. Indeed, the current
Public-Private-Partnerships (‘PPPs’) and state-owned enter
crisis has had a dramatic impact also on public finances,
prises (‘SOEs’), aiming at putting the gross public debt-to-
which ultimately led to a sharp increase in sovereign
GDP ratio on a firm downward path in the medium
spreads. Amidst consecutive downgradings by credit
term. The authorities are committed to reducing the
rating agencies of Portuguese bonds, the country
deficit to 3 % of GDP by 2013. Third, a financial
became unable to refinance itself at rates comptabile
sector strategy based on recapitalisation and deleveraging,
with long-term fiscal sustainability. In parallel, the
with efforts to safeguard the financial sector against
banking sector, which is heavily dependent on external
disorderly deleveraging through market-based
financing, particularly within the euro area, was
mechanisms supported by back-up facilities.
increasingly cut off from market funding.
(2) In
view
of
this
severe
economic
and
financial
disturbance (4) Under
the
Commission’s
current
projections
for
nominal
caused by exceptional circumstances beyond the control
GDP growth (- 1,2 % in 2011, - 0,5 % in 2012, 2,5 % in
of the government, Portugal officially requested financial
2013 and 3,9 % in 2014), the fiscal targets are consistent
assistance from the European Union, the Member States
with a path for the debt-to-GDP ratio of 101,7 % in
whose currency is the euro, and the International
2011, 107,4 % in 2012, 108,6 % in 2013 and
Monetary Fund (‘IMF’) on 7 April 2011 with a view to
107,6 % in 2014. The debt-to-GDP ratio would
supporting a policy programme to restore confidence
therefore be stabilised in 2013 and be placed on a
and enable the return of the economy to sustainable
declining path thereafter, assuming further progress in
growth, and to safeguarding financial stability in
the reduction of the deficit. Debt dynamics are affected
Portugal, the euro area and the Union. On 3 May
by several below-the-line operations, which are projected
2011, an agreement was reached between the
to increase the debt-to-GDP ratio by 1 percentage
Government and the joint Commission/IMF/ECB
points (‘pps’) of GDP in 2011 and by pps per year
mission in respect of a comprehensive three-year policy
between 2012 and 2014. These include sizeable
acquisitions of financial assets, notably for possible
( 1 ) OJ L 118, 12.5.2010, p. 1.
bank recapitalisation and financing to SOEs amounting

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EN
17.6.2011 Official
Journal
of
the
European
Union L
159/89
to % of GDP per year between 2011 and 2014. On
(10) Throughout the implementation of the Programme, the
the other hand, privatisation proceeds totalling around
Commission should provide additional policy advice and
3 % of GDP up to the year 2013 will support debt
technical assistance in specific areas.
reduction efforts.
(11) The
operations which the Union financial assistance
(5)
The assessment by the Commission, in liaison with the
helps to finance must be compatible with Union
European Central Bank (‘ECB’) and together with the IMF,
policies and comply with Union legislation. Interventions
is that Portugal needs financing of a total amount of
in support of financial institutions must be carried out in
EUR 78 billion (78 000 million) over the period from
accordance with Union rules on competition.
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
(12) The assistance
should be provided with a view to
Programme. This assumes no access to the medium-
supporting the successful implementation of the
and long-term debt market until the first half of 2013.
Programme,
Portugal is assumed to be able to roll-over part of its
existing stock of short-term debt, while the programme
also provides for a financing buffer in case of unexpected
HAS ADOPTED THIS DECISION:
deviations from the Commission’s baseline financing
scenario. Portugal is encouraged to maintain and adjust
Article 1
its financial market operations, seeking to develop
market access and confidence. The financial sector
1. The
Union
shall
make
available
to
Portugal
a
loan
strategy contained in the programme to restore
amounting to a maximum of EUR
26
billion, with a
confidence in the Portuguese banking system on a
maximum average maturity of 7,5 years.
sustainable basis requires banking groups to bring their
core tier 1 capital ratio to 9 % by the end of 2011 and to
10 % by the end of 2012 and to maintain it thereafter.
2. The
financial
assistance
shall
be
made
available
during
The programme contains a banking support scheme of
three years starting from the first day after the entry into
up to EUR 12 billion to provide the necessary capital in
force of this Decision.
case market solutions cannot be found. Actual funding
needs may, however, be substantially lower, in particular
if market conditions improve significantly and no severe
3. The
Union
financial
assistance
shall
be
made
available
by
unexpected banking losses materialise during the period
the Commission to Portugal in a maximum of 14 instalments.
of the Programme.
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
(6) The Programme would be financed through
paragraph 1. In such cases, the maturities of further tranches
contributions from external sources. The Union’s
shall be set so that the maximum average maturity referred to
assistance to Portugal would reach up to EUR 52 billion
in paragraph 1 be achieved once all instalments have been
under the European Financial Stabilisation Mechanism
disbursed.
(‘EFSM’) established by Regulation (EU) No 407/2010
and from contributions from the European Financial
4. The
first
instalment
shall
be
released
subject
to
the
entry
Stability Facility. In addition, Portugal has requested a
into force of the Loan Facility Agreement and the Memorandum
loan of SDR 23,742 billion (equivalent to EUR 26 billion
of Understanding. Any subsequent loan releases shall be condi
at the exchange rate of 5 May 2011) from the IMF under
tional upon a favourable review by the Commission, in consul
an Extended Fund Facility. The support from the EFSM
tation with the ECB, of Portugal’s compliance with the general
needs to be supplied on terms and conditions similar to
economic policy conditions as defined by this Decision and the
those of the IMF. The Union financial assistance should
Memorandum of Understanding.
be managed by the Commission.
5. Portugal shall pay the cost of funding of the Union for
(7) The
Council
should
review
on
a
regular
basis
the each tranche plus a margin of 215 basis points, which results in
economic policies implemented by Portugal.
conditions similar to those of the IMF support.
(8) The
specific
economic
policy
conditions
agreed
with 6. In addition, the costs referred to in Article 7 of Regulation
Portugal should be laid down in a Memorandum of
(EU) No 407/2010 shall be charged to Portugal.
Understanding on Specific Economic Policy Condi
tionality (the ‘Memorandum of Understanding’). The
detailed financial terms should be laid down in a Loan
7. If required in order to finance the loan, the prudent use of
Facility Agreement.
interest rate swaps with counterparties of the highest credit
quality and advanced borrowing shall be permitted.
(9) The
Commission,
in
liaison
with
the
ECB,
should
verify
at regular intervals that the economic policy conditions
8. The
Commission
shall
decide
on
the
size
and
release
of
attached to the assistance are fulfilled, through missions
further instalments. The Commission shall decide on the size of
and regular reporting by the Portuguese authorities.
the tranches.

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L 159/90
EN
Official Journal of the European Union
17.6.2011
Article 2
5. Portugal
shall
adopt
the
following
measures
before
the
end of 2011, in line with specifications in the Memorandum
1. The assistance shall be managed by the Commission in a
of Understanding:
manner consistent with Portugal’s undertakings.
2. The
Commission,
in
consultation
with
the
ECB,
shall
agree
with the Portuguese authorities the specific economic policy
(a) Portugal shall implement fully the fiscal consolidation
conditions attached to the financial assistance as set out in
measures foreseen in the 2011 budget amounting to
Article 3. Those conditions shall be laid down in a
around EUR 9 billion and additional measures introduced
Memorandum of Understanding to be signed by the
before May 2011 worth more than EUR 400 million.
Commission and the Portuguese authorities consistent with
These measures aim at a reduction of the general
the undertakings referred to in paragraph 1. The detailed
government deficit within the time-frame referred to in
financial terms shall be laid down in a Loan Facility
paragraph 3. The revenue measures foreseen in the 2011
Agreement to be concluded with the Commission.
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
3. The
Commission,
in
liaison
with
the
ECB,
shall
verify
at
expenditure measures foreseen in the 2011 budget, addi
regular intervals (at least quarterly) that the economic policy
tional measures including savings in the health sector,
conditions attached to the assistance are fulfilled, and report
lower subsidies for state-owned enterprises (‘SOEs’), and
to the Economic and Financial Committee before disbursement
reductions in social transfers shall be implemented.
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
(b) Portugal shall adopt measures reinforcing a credible
Committee informed of possible refinancing of the borrowings,
budgetary strategy and strengthening the budgetary
or changes to the financial conditions.
framework. Portugal shall fully implement the measures
foreseen in the new Budgetary Framework Law, including
setting up a medium-term budgetary framework, prepare a
4. Portugal
shall
adopt
and
implement
additional
consoli
thorough fiscal strategy analysis and establish an inde
dation measures to ensure macro-financial stability, in case
pendent Fiscal Council. The local and regional financing
such measures will be necessary during the programme of
frameworks shall be aligned to the new Budgetary
assistance. The Portuguese authorities shall consult the
Framework Law. Portugal shall step up reporting and moni
Commission and the ECB in advance of the adoption of any
toring of public finances, including, in particular, of arrears.
such additional measures.
Portugal shall start the systematic and regular analysis of
fiscal risks as part of the budget process, including the
Article 3
risks stemming from Public Private Partnerships (‘PPPs’)
and SOEs.
1. The
draft
economic
and
financial
adjustment
programme
(the ‘Programme’) prepared by the Portuguese authorities is
hereby approved.
(c) Portugal shall adopt the first batch of measures aimed at
strengthening labour market functioning by limiting
2. The
disbursement
of
each
instalment
after
the
first
one
severance payments and making working time arrangements
shall be made on the basis of a satisfactory implementation of
more flexible.
the Programme and, more particularly, the specific economic
policy conditions laid down in the Memorandum of Under
standing. These shall include, inter alia, the measures provided
for in paragraphs 4 to 8 of this Article.
(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
3. The general government deficit shall not exceed
schemes for the production of electricity. For other
EUR 10 068 million (equivalent to 5,9 % of GDP based on
network industries, in particular transport, telecommuni
current projections) in 2011, EUR 7 645 million (4,5 % of
cations and postal services, Portugal shall adopt additional
GDP) in 2012 and EUR 5 224 million (3,0 % of GDP) in
measures to promote competition and flexibility.
2013, in line with the excessive deficit procedure (EDP)
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
(e) Portugal shall take urgently action to foster competition and
into account. Consolidation shall be achieved by means of
the economy’s adjustment capacity. This includes the
high-quality permanent measures and minimising the impact
abolition of special rights of the State in companies, a
on vulnerable groups.
revision of competition law to make it more effective,
lighter requirements for establishment and cross-border
provision in services sectors.
4. 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
(f) Portugal shall improve practices and rules for public
consolidation measures to reduce the deficit to below 3 % of
procurement contributing to a more competitive business
GDP by 2013 in case of deviations from targets.
environment and to more efficient public spending.

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17.6.2011 Official
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European
Union L
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6. Portugal shall adopt the following measures during 2012,
times the social support index, a reduction in benefits
in line with specifications in the Memorandum of Under
over the unemployment spell, a reduction of the
standing:
minimum contributory period, and an extension to
certain categories of self-employed. Active labour market
policies shall be strengthened after a review of current
(a) The 2012 budget shall include a budget neutral recali
practices and an agreed action plan.
bration of the tax system with a view to lowering labour
costs and boosting competitiveness.
(i) The
system
of
severance
payments
shall
be
brought
in
line
with practices in other EU Member States, based on the
(b) The budget for 2012 shall include fiscal consolidation
specification in the Memorandum of Understanding.
measures amounting to at least EUR 5,1 billion and
aiming at a reduction of the general government deficit
within the time-frame referred to in Article 3(3).
(j) Regulations
on
overtime
pay
shall
be
eased
and
increased
flexibility of working time arrangements introduced in line
with the Memorandum of Understanding.
(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
(k) Portugal shall promote wage developments consistent with
duplicities and other inefficiencies; cuts in education and
the objectives of fostering job creation and improving
health; lower transfers to regional and local authorities; a
firms’ competitiveness with a view to correcting macro
reduction in public sector employment; adjustments in
economic imbalances. Any increase in minimum wages
pensions; and reductions in capital expenditure and in
will take place only if justified by economic and labour
other expenditure as set out in the Programme.
market developments. Measures shall be taken to address
weaknesses in the current wage bargaining schemes,
including legislation to redefine the criteria and modalities
(d) On the revenue side, the budget shall include revenue
of the extension of collective agreements and to facilitate
measures totalling around EUR 1,5 billion in a full year
firm-level agreements.
including, inter alia: broadening the corporate and
personal income tax bases by reducing tax deductions
and special regimes; ensuring the convergence of personal
(l) An
action
plan
shall
be
prepared
to
improve
the
quality
of
income tax deductions applied to pensions and labour
secondary and vocational education.
income; changes in property taxation by substantially
reducing exemptions; broadening VAT bases by reducing
(m) The functioning of the judicial system shall be improved by
exemptions and rearranging the lists of goods and services
implementing the measures proposed under the Judicial
subject to reduced, intermediate and higher rates; and, an
Reform Map and by conducting and auditing of the
increase in excises. These measures shall be complemented
backlog cases in order to target measures to eliminate
by action to fight tax evasion, fraud and informality.
court backlog and foster alternative dispute settlements.
(e) Portugal shall put in place a strengthened legal and insti
(n) The competition framework shall be improved by rein
tutional framework for assessing fiscal risks prior to
forcing the independence and resources of the national
engaging in a PPP contract. Similarly, Portugal shall adopt
regulator authorities. Professional services shall be
a law to regulate the creation and the functioning of SOEs
liberalised by improving the professional qualification
at the central, regional and local levels. Portugal shall not
framework and by eliminating restrictions on regulated
engage in any new PPP contract or create an SOE until the
professions.
reviews and the new legal structure are in place.
(o) Regulated tariffs in electricity and gas retail markets shall be
(f) Local
government
administration
in
Portugal
has
currently
eliminated.
308 municipalities and 4 259 parishes. Portugal shall
develop a consolidation plan to reorganise and significantly
reduce the number of such entities. These changes will
7. Portugal
shall
adopt
the
following
measures
during
come into effect by the beginning of the next local
2013, in line with specifications in the Memorandum of
election cycle.
Understanding:
(g) Portugal shall modernise the revenue administration by
(a) The 2013 budget shall include fiscal consolidation measures
creating a single entity, reducing the number of
amounting to at least EUR 3,2 billion aiming at a reduction
municipal offices and addressing remaining bottlenecks in
of the general government deficit within the time-frame
the tax appeal system.
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
(h) Portugal shall introduce legislation to reform the unem
expenditures in the central administration, education and
ployment insurance system, including a reduction of the
health; transfers to local and regional authorities; reducing
maximum duration of unemployment insurance benefits
the number of employees in the public sector; and, lowering
to 18 months, a cap on unemployment benefits to 2,5
costs by SOEs.

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Official Journal of the European Union
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(b) The budget shall include revenue measures including
(f) amend by end-2011 legislation concerning early inter
notably further broadening of corporate and personal
vention and resolution of banks as well as legislation
income tax bases, higher excises taxes and changes in
concerning the Deposit Guarantee Fund and the Guarantee
property taxation, yielding close to EUR 0,8 billion of addi
Fund for Mutual Agricultural Credit Institutions, with a view
tional revenue. Portugal shall improve the business
to protecting depositors and facilitate restructuring. In
environment by reducing administrative burden through
particular, these funds should retain the ability to fund
the extension to all sectors of the economy of simplification
the resolution of distressed credit institutions, but not to
reforms (Points of Single Contact and Zero authorisation
recapitalise them. Such funding shall be capped at the
projects) and by alleviating SME’s credit constraints
amount of guaranteed deposits that would have to be
including with the implementation of Directive 2011/7/EU
paid out in liquidation and be permissible only if it does
of the European Parliament and of the Council of
not prejudice the ability of these funds to perform their
16 February 2011 on combating late payment in
primary function;
commercial transactions ( 1 ).
(g) amend by end-November 2011 the Insolvency Law to
(c) Portugal shall complete the elimination of the court
provide that guaranteed depositors and/or the funds
backlog.
(directly or through subrogation) will be granted a priority
ranking over unsecured creditors in the credit institution’s
8. With
a
view
to
restoring
confidence
in
the
financial
sector,
insolvent estate and to better support effective rescue of
Portugal shall adequately recapitalise and orderly deleverage its
viable firms;
banking sector and bring closure to the Banco Português de
Negócios case. In that regard, Portugal shall develop and agree
(h) undertake to encourage private investors to maintain their
with the Commission, the ECB and the IMF a strategy for the
overall exposures on a voluntary basis.
future structure and functioning of the Portuguese banking
groups so that financial stability is preserved. In particular,
and in line with exact deadlines for the years 2011-2014
9. In
order
to
ensure
the
smooth
implementation
of
the
being specified in the Memorandum of Understanding,
Programme’s conditionality, and to help to correct imbalances
Portugal shall:
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
(a) amend legislation in order to facilitate the issuance of
to Portugal, together with the IMF and in liaison with the ECB,
government guaranteed bank bonds for an appropriate
it shall periodically review the effectiveness and economic and
amount in accordance with the Memorandum of Under
social impact of the agreed measures, and shall recommend
standing;
necessary corrections with a view to enhancing growth and
job creation, securing the necessary fiscal consolidation and
(b) adopt the necessary regulatory requirements by end-May
minimising harmful social impacts, particularly regarding the
2011 regarding increases in minimum core tier 1 capital
most vulnerable members of Portuguese society.
adequacy ratio to 9 % by end-2011 and 10 % by end-2012
(to be maintained thereafter);
Article 4
(c) ensure that banks by end-June 2011 devise institution-
Portugal shall open a special account with the Bank of Portugal
specific medium-term funding plans to achieve a stable
for the management of the Union financial assistance.
market-based funding position in line with periodic target
leverage ratios established by the Bank of Portugal and the
Article 5
ECB. The feasibility of these funding plans and their impli
cations for leverage ratios will be examined by the Bank of
This Decision is addressed to the Portuguese Republic.
Portugal and the ECB, in consultation with the Commission
and the IMF staff on quarterly basis.
Article 6
This Decision shall be published in the Official Journal of the
(d) indicate clear periodic target leverage ratios for banks and
European Union.
step up the solvency and deleveraging assessment
framework during 2011;
(e) ensure that the state-owned Caixa Geral de Depósitos will
Done at Brussels, 30 May 2011.
be streamlined to increase the capital base of its core
banking arm as needed and launch a process to sell
For the Council
Banco Português de Negócios on an accelerated schedule.
To this end, Portugal shall submit a new plan to the
The President
Commission for approval under State aid control rules;
CSFALVAY Z.
( 1 ) OJ L 48, 23.2.2011, p. 1.

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