Portugal seeks German support to ease austerity

Portugal appears to have won the support of Germany's finance minister in its efforts to get some breathing space for the implementation of austerity and reform measures promised in return for last year's bailout.

Tax hikes, pay cuts and other debt-reduction measures being enacted in return for the78 billion ($103 billion Cdn) rescue package are widely blamed for Portugal's deepening recession and record unemployment.

The government has said it wants more flexible bailout terms, which it hasn't identified, though it insists Portugal doesn't need more money nor more time to restore its fiscal health.

German Finance Minister Wolfgang Schaeuble was caught on tape late Thursday telling his Portuguese counterpart that Berlin is ready to support possible changes to Portugal's bailout program.

In comments captured by Portuguese television channel TVI ahead of a European finance ministers' meeting in Brussels, Schaeuble tells Vitor Gaspar that "the key" for new steps to be taken is first finding a solution forGreece's ongoing debt woes.

"If then there would be a necessity for the adjustment of the Portugal program, we would be ready to do it," Schaeuble said in apparently unguarded comments during a conversation between the two.

"That's much appreciated," Gaspar replies.

It wasn't clear whether their entire conversation was recorded.

Further Portugese contraction predicted

Schaeuble also cautions Gaspar that members of the German Parliament and German public opinion may be hard to persuade because they "don't believe that our decisions are serious" and remain skeptical about European measures to tackle Greece's woes.

Portuguese Prime Minister Pedro Passos Coelho has in recent months repeated that his country is keen to soften the bailout terms, though he hasn't provided details of what exactly Portugal wants.

The possibility of altering the Portuguese bailout program has not been broached publicly by European officials who fear adding more uncertainty to the continent's two-year-old sovereign debt crisis.

Gaspar told Portuguese media after the meeting ended that Portugal has not made a formal request for a revision of the bailout terms and that it will honour the agreement it signed last May.

Many analysts anticipate Portugal will need more help because the Bank of Portugal predicts an economic contraction of 3.1 per cent this year. The jobless rate has climbed to 13.6 per cent.

Gaspar said Schaueble expressed his appreciation for Portugal's debt-reduction efforts.

Gaspar also noted that the international lendersthe International Monetary Fund, the European Central Bank and the European Commissionhave already said they will provide further support if Portugal, after enacting its bailout program, is still unable to return to markets next year as planned because of external factors.