Lenders' quarrels undermine trust in Portugal, says leader

LISBON Wed Jun 12, 2013 2:54pm BST

Members of the European Parliament hold posters with the slogan ''Troika away from Portugal'' during Portugal's President Anibal Cavaco Silva (not pictured) address to the assembly in Strasbourg, June 12, 2013. REUTERS/Vincent Kessler

Members of the European Parliament hold posters with the slogan ''Troika away from Portugal'' during Portugal's President Anibal Cavaco Silva (not pictured) address to the assembly in Strasbourg, June 12, 2013.

Credit: Reuters/Vincent Kessler

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LISBON (Reuters) - Quarrelling between the EU and IMF is damaging investor confidence in Portugal and Ireland, and the countries' sacrifices merit better coordination from their international lenders, Portugal's prime minister said.

Pedro Passos Coelho told reporters on Wednesday that public disagreements within the Troika of lenders pose a "real risk" to his country, referring to a spat that broke out between the European Union and the International, Monetary Fund over how the Greek bailout was handled.

"I hope the Troika institutions avoid this kind of public show which may generate distrust in the markets," he said. "Divergences about the programmes means investors start to wonder if programmes like Ireland's and Portugal's contain errors that undermine confidence."

In a report last week, the IMF blamed the euro zone for allowing Athens to delay restructuring its debts until 2012.

"This (rift) is a real risk, but I hope it will be overcome. Both the Irish and the Portuguese government have showed commitment (to targets set by the Troika) in their results," the prime minister said.

Last month, Portugal issued its first 10-year bond since a 2011 bailout, making the most of much improved market conditions. Its benchmark 10-year bond yields are at around 6.3 percent, well down from the 17 percent high they hit in January 2012.

But they remain above May's level of 5.24 percent and the country has yet to fully normalize its access to markets while it battles through a third year of recession.

Passos Coelho said the Portuguese and the Irish had made "immense efforts" under their bailouts and "deserve the respect of international institutions".

He added that his government's relationship with the Troika "has not been easy" but that it was good enough for twice earning an easing of budget deficit targets.

Under revised terms of the 78 billion euro ($100.9 billion) bailout it was granted in 2011, Lisbon must reduce the public deficit to 5.5 percent of GDP this year from last year's 6.4 percent, then to 4 percent in 2014 and 2.5 percent in 2015.

Its European partners have acknowledged that further easing may be on the cards if economic conditions deteriorate.

(Reporting by Daniel Alvarenga and Sergio Goncalves; Editing by John Stonestreet)

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