Euro zone finance ministers are ready to back an EU/IMF bailout of Portugal at a Monday meeting overshadowed by the arrest of International Monetary Fund chief Dominique Strauss-Kahn on sexual assault charges.
Strauss-Kahn was scheduled to be part of the talks, when the euro zone's 17 finance ministers will sign off on a 78 billion euro package of emergency loans, but he will be replaced by IMF Deputy Managing Director Nemat Shafik, the organization said.
The European Commission, which negotiated the Portuguese bailout and earlier assistance packages for Greece and Ireland alongside the IMF, dismissed suggestions that Strauss-Kahn's arrest would have any impact on any of the programs.
I would like to reassure public opinion, the markets and the press, there's absolutely no question: decisions which are under way will not be impacted and this will not have an impact on the programs being applied, Commission spokesman Amadeu Altafaj told reporters.
The IMF, he added, remains a strong institution as it always has been and there will be full continuity.
In the short term, with emergency loan packages for Greece, Ireland and Portugal in place and no changes immediately expected, Strauss-Kahn's absence from the leadership of IMF decision-making is unlikely to have a discernable impact.
But if Greece seeks a further bailout, or other countries need assistance, the political direction he has given the institution over the past four years, giving its programs a softer tone, may be felt to be lacking.
There are also concerns that when it comes to Greece, which Strauss-Kahn follows closely and which received 110 billion euros of bilateral loans last May, there may be a more immediate change in attitude toward Athens.
Strauss-Kahn had a very good knowledge of Greece's situation, one official said, before adding that his arrest would not change the IMF's policy on Greece.
DIFFERENT TERMS FOR PORTUGAL?
Portugal's bailout, finalized this month, will involve loans over three years to provide budget support, aid with structural reforms and help with recapitalizing its banks.
The plan needs to be approved unanimously by euro zone finance ministers. Finland's parliament set conditions for its approval on Friday, saying Lisbon had to ask private bondholders to maintain their exposure to Portuguese debt.
The second condition set by Finland is for Portugal to embark on a privatization program to raise funds.
If euro zone finance ministers agree to the Finnish demands, it will mark a change from the terms given to Ireland and Greece, which did not mention any need for private investors to maintain their exposure to the countries' debt.
I am confident that the Portuguese package will be approved on Monday, Economic and Monetary Affairs Commissioner Olli Rehn, a Finn, told reporters on Friday.
Rehn said the interest rate on loans to Portugal, to be decided by the ministers, would be between 5.5 and 6.0 percent.
This is in line with the borrowing cost set by the initial euro zone agreement on emergency funding through the European Financial Stability Facility (EFSF), rather than a more favorable EFSF lending rate EU leaders suggested in March.
Euro zone leaders lowered Greek loan rates, originally about 5.2 percent, to 4.2 percent in March. But the 5.8 percent on loans to Ireland was not cut, because of a dispute over its company tax rate, which France and Germany see as too low.
Despite its lower borrowing costs, Greece is pushing for an extension of the maturities on its loans and possibly an even lower interest rate, because it is struggling to finance itself, with total debts now at 150 percent of GDP.
Many analysts expect Greece to have to restructure its debts at some point, but the European Commission and others have repeatedly ruled out that possibility.
Debt restructuring is not in the cards for Greece, the Commission's Altafaj said on Monday, although he later said that a reprofiling of Greece's debt would be a different concept from restructuring.
A euro zone source involved in the preparation of the ministers' meeting told Reuters additional Greek financing needs in 2012 and 2013 would be discussed.
Yet the position of the Finnish parliament is likely to mean that to get additional funds to cover its financing gap, estimated at 65 billion euros over the next two years, Greece will have to provide collateral for the new euro zone loans.
The source said countries in the single currency area could come up with additional funding for Greece only if Athens met the fiscal consolidation and reform targets it has already committed itself to, which would require new steps.
Rehn was clear on Friday that Greece had to do more, because it was missing its deficit reduction targets.
The Monday meeting will not make any decisions on Greece. Ministers want to see the results of the EU/IMF mission, which is likely to finish its assessment of Greek reforms and the country's debt sustainability only later in the week.