MORE EU FINANCIAL CHAOS: Portugal in desperate £3.8bn bid to stabilise its banking system

Thursday, August 25, 2016
By Paul Martin

PORTUGAL is set to inject billions of euros into its biggest bank in the hope of stabilising the country’s economy.

Thu, Aug 25, 2016

The €5billion (£3.8bn) planned recapitalization of Caixa Geral de Depositos carefully side-steps European Commission new rules that mean state cash can’t be used to shore up banks.

Under the plans, the government will put in money into the bank but it’s hoped it will get more money back after Caixa will also issue out highly subordinated debt.

Portugal’s financial minister Mario Centeno told CNBC: “This is another big step towards the stabilisation of the Portuguese financial system. This is a milestone in the process and we are looking for business plans.

“I think it will create necessary turnout not just in Caixa but also in the Portuguese financial system.”

It comes as Portugal’s economy is heavily weighed down by debt at GDP ratio of 129 per cent, and as it struggles to bring down its budget deficit.

Lisbon had been given deficit targets of 5.5 per cent of GDP in 2013, four per cent in 2014 and 2.5 per cent of GDP in 2015 – but recorded an actual deficit of 4.4 per cent last year.

Mr Centeno said: “First it is very important, our relationship with the European Commission, and it is working very very well as the situation improves. We are looking at a very constructive relationship with Brussels.

“Second, on the budget front, we are going to post data up to July in the budget and we see contained public expenditure, a big reduction in deficit vis-a-vis last year.”

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