Fears of a Portuguese bailout grow

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Fears of a Portuguese bailout grow

Fears of a Portuguese bailout grow
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Any hope the eurozone’s debt crisis will not spread to the Iberian peninsula appears to be fading fast. Despite raising VAT and cutting top civil servants pay, Portugal’s politicians appear to have failed in their bid to convince the bond markets they are able to prevent a Greek and now Irish style economic tragedy.

Last year the country’s deficit stood at a crippling 9.3 percent. In June the government passed plans to more than halve it by 2011. The problem is that real doubts remain over whether it can be achieved.

Many experts predict it is more a question of when and not if Lisbon goes cap in hand for financial assistance, despite the country’s Prime Minister insisting otherwise.

“We took very important and very difficult decisions for the next year in order to ensure debt reduction from 7.3% to 4.6% and with that we protect our country,” Portuguese Prime Minister José Sócrates said.

One of the main problems is that Portugal’s budget plan doesn’t appear to have delivered. The public sector deficit actually went up by two percent in the first nine months of this year. It means the government will have to introduce more austerity in 2011, notably a rise in VAT to 23 percent and a further cut to public services by five percent.

The other main worry for investors is the unhealthy prospects of the Portuguese economy. A decade of stagnation, weak growth, not forgetting the global financial crisis have all compounded Portugal’s misery. In 2009, Portuguese GDP shrank by more than two and a half percent. This year the government expects growth of about 1.3 percent.

For many, like Joao Pereira, head of investment at Banco Carregosa, Portugal’s economy must do much more if it is to climb out of the hole it finds itself in.

“We have to grow more than the other European countries, we have to save more and we have to have gains in our productivity. That’s the way to step out. This plan is not enough,” he said.

The flip side to the economic crisis is Portugal’s social crisis. Unemployment stands at 11 percent, and Portuguese poverty has soared.

Clinical Psychologist Jessica Patricio said: “We are talking about people who are becoming desperate. They need help and there aren’t any solutions. There aren’t many institutions that can give them the proper help.”

According to many Portuguese charities, one out of four people who ask them for help, have already gone the whole day without eating.