Portugal announced new austerity measures on Friday in a last-ditch effort to avoid a bailout, putting the onus back on Germany at a euro zone summit to accept a stronger financial safety net for the currency bloc. A German government source said there were positive signals that Greece and Ireland, which received EU/IMF bailouts last year, might also announce new moves at the summit, opening the way for EU paymaster Germany to offer them more help.
Chancellor Angela Merkel wants the 17 nations that share the euro to embrace a plan for stricter fiscal discipline and greater economic competitiveness before she will consider increasing the size and scope of the euro zone rescue fund. Germany, the Netherlands and Finland, where public opinion opposes more aid for what are seen as profligate peripheral states, have opposed changes to European Financial Stability Facility (EFSF) such as letting it buy bonds of troubled countries or fund bond buy-backs.
A German source said Merkel could accept some easing of the terms on the Greek and Irish bailout loans if Athens speeded up promised privatisations and Dublin was more forthcoming on a common corporate tax base in the euro zone. Any decision would only be taken at a planned EU summit on March 24-25, which is due to adopot a comprehensive response to the euro zone's debt crisis.
But new Irish Prime Minister Enda Kenny said Dublin, which has an ultra-low 12.5 percent corporate tax rate, would resist German efforts to introduce a common corporate tax base. "This would be a harmonisation of tax by the back door," he said in comments broadcast by RTE state radio. Greece said that weaker than expected revenues and higher spending had widened its state budget shortfall in the first two months of 2011, blowing it off course to meet the tough fiscal targets set out by the EU and IMF.
Moody's slashed Athens' credit rating by three notches on Monday citing a heightened risk of default. The slow pace of EU crisis management has piled pressure on Portugal to seek an EU/IMF bailout. Prime Minister Jose Socrates has resisted, saying it would be a national humiliation.