Portugal agreed a three-year 78-billion-euro ($116 billion) bailout with the European Union and IMF Tuesday, making it the third euro zone country in a year, after Ireland and Greece, to need financial help.

Giving few details except that Portugal has more time to meet budget deficit targets than previously promised by the government, caretaker Prime Minister Jose Socrates warned there are no financial assistance programs that are not demanding.

The deal is more complicated than Ireland's 85 billion euro package, agreed last November, or Greece's 110 billion euro program agreed on May 2, 2010. Portugal has high public sector debts, banking problems and structural economic shortcomings, with rigid labor markets and a costly state pension system.

The Portuguese bailout is certainly not good enough, said Greg Salvaggio, vice president for capital markets at Tempus Consulting in Washington.

What it is very similar to the situation in Greece last year where it's simply a band-aid. If you look at the plan that was put in place for Greece, for Ireland, and now Portugal, none of them really addressed the underlying fundamentals, which have caused the problem, Salvaggio said.

Portugal is also set to hold a parliamentary election on June 5 following the resignation of the previous government, which collapsed when its plans for austerity measures were voted down by parliament.

The political limbo means the EU and IMF have negotiated a deal with politicians looking for re-election. The caretaker government will have to win the endorsement of major opposition parties before agreeing any bailout deal.

But even then, there is the risk that any package will not be approved by all 17 countries in the euro zone.

Finland's likely next prime minister Tuesday split the issue of EU bailouts from talks on forming a government -- with True Finns and the Social Democrats, both against the bailout, hoping to secure informal approval of an aid package for Portugal before EU meetings on May 16 and 17.

Jyrki Katainen, whose National Coalition party won last month's election, said he would immediately open talks on Portugal with parliamentary groups -- some of which are more pro-Europe but unlikely to enter government.

DEVIL IN THE DETAILS

Few details were given on a deal Portugal has been negotiating with the European Commission, the European Central Bank and the International Monetary Fund for three weeks.

Portugal's new deficit target is 5.9 percent of gross domestic product this year, rather than 4.6 percent, 4.5 percent next year and 3 percent in 2013. A European Commission source said the interest rate would be set by EU ministers on May 16.

He showed us the bright side of the moon, it is the dark side that remains to be seen, and that includes the interest rate, said Filipe Garcia, head of Informacao de Mercados Financeiros consultants in Porto.

A deal struck with Greece exactly one year ago looked to be unraveling. Greece's finance minister said Monday he hoped Athens might get more time to repay the EU/IMF bailout loans, already extended from three to seven years, at a lower rate.

An influential member of Germany's governing coalition backed the possibility Tuesday of easing the terms of Greece's euro zone bailout.

Michael Meister, deputy parliamentary leader of Chancellor Angela Merkel's Christian Democrats, said he saw logic in extending the repayment schedule.

His intervention followed European Central Bank policymaker Nout Wellink, who said Monday he was open to the idea of extending maturities on all Greek debt, the first senior ECB official to admit the possibility of a restructuring publicly.

The direction of the debate is sensible, Meister told Reuters, adding that any softening of the terms would not come without a 'quid pro quo' down the line. For further aid, Greece must also offer additional measures, he said.

European Union and IMF inspectors are in Greece to assess whether the country's new austerity plans are tough enough, a review that could determine whether the loan terms are changed.

If they were to be altered, it could help Greece better manage its massive sovereign debt pile, which is set to rise to 340 billion euros, or 150 percent of annual output, this year.

Without a massive pickup in growth or one-off income from privatizations, Greece is not expected to be able to finance its debts, which means restructuring is probable.

That would alarm bondholders, who include many major French and German banks and the European Central Bank -- 70 percent of Greece's debt is owned by foreign institutions.

Under the umbrella debt restructuring there are various options, ranging from writing down the value of the debt by a set amount, known as a haircut, to rescheduling when the debt will be repaid, which is a softer form.

But Finance Minister George Papaconstantinou said Tuesday any restructuring would be a disastrous mistake.

It would have a very big cost and we would not have the benefit, we would stay out of markets for 10-15 years, the wealth of Greek pension funds would suffer writedowns, we would have problems in the banking system and hence the real economy.

(Additional reporting by Jan Strupczewski in Brussels and Andrei Khalip in Lisbon; Writing by Luke Baker; Editing by Louise Ireland)

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