'Frankenstein' jibe greets Merkel

Anti-austerity protesters draped Lisbon statues in black mourning sashes to greet Angela Merkel today and a business newspaper blamed the visiting German chancellor for "Frankenstein" policies driving Portugal into poverty.

Dr Merkel, due to land about midday, is expected to repeat her endorsement of sharp spending cuts and tax increases being pushed through by fellow conservative prime minister Pedro Passos Coelho to meet the terms of last year's German-backed European rescue deal for the deeply indebted Portuguese state.

Her six-hour visit also seems intended to reassure German voters that the bailout money they lent is being well used.

But though she is unlikely to suffer the tear gas and Nazi taunts which soured a similar visit to troubled Athens a month ago, Portuguese patience with austerity, once much remarked on, has begun to fray during the worst slump since the 1970s.

The people of Lisbon woke today to find a dozen or so public statues in the city centre draped with black plastic bands in a sign of mourning; an online campaign has been urging Portuguese to wear black themselves during Dr Merkel's visit.

Protesters had also pasted up posters showing Mr Passos Coelho, Dr Merkel and European Central Bank chief Mario Draghi in a casino with an inscription reading: "We pay, they play, bank wins."

In a startling example of how a consensus on deficit-cutting has broken down within the Portuguese establishment, a major business newspaper, Diario Economico, ran an opinion piece today condemning Dr Merkel for pushing the Portuguese government to impose austerity measures in the depth of a recession: "Merkel has made an economic Frankenstein out of Portugal," the newspaper said, warning of a downward spiral in activity.

The German leader, however, has insisted that only reforms to cut the public deficit can restore growth and she and her ministers have cited Portugal as a model for other debtors: "Portugal is meeting the commitments it has assumed very well," Dr Merkel told Portuguese broadcaster RTP yesterday - a vote of confidence Mr Passos Coelho will welcome as he urges compatriots to take more pain and tries to distinguish Portugal from Greece.

German business leaders, to whom Portugal is looking for more investment, also offered praise - but warned Lisbon against weakening the drive to strengthen public finances: "We see in Portugal the government's valiant action to seriously improve the country's framework in order to win back investors' confidence," Hans-Peter Keitel, head of the BDI German industry grouping, said in a statement.

Paul Bauwens-Adenauer of the DIHK business forum said: "Portugal has so far fulfilled all its savings duties. The path of reforms it has started out on deserves recognition, but it must continue to be seriously implemented."

Merkel's first such direct government meeting in Portugal since she took office seven years ago coincides with the beginning of the quarterly bailout review by the European Commission, ECB and the IMF, which is likely to last two weeks.

Mr Passos Coelho blames Lisbon's debt crisis on overspending by previous governments and says its only option now is to keep to budget goals set under last year's 78-billion-euro bailout deal.

"Today, we would be living through far, far greater difficulties if our European partners, including Germany, had not helped with the loans we have received," he said last week.

Among political leaders, however, consensus on deficit cuts has broken down, posing risks to the financing deal as the country prepares for a third year of recession in 2013 and the Portuguese face the biggest tax increases of modern times.

Lenders the European Union and International Monetary Fund have already relaxed targets on the budget as recession saw tax revenues this year fall below expectations; opponents on the left say government cuts are creating a vicious downward spiral.

"The way of austerity is defended and demanded by Mrs. Merkel and it has a good practitioner in Portugal - the prime minister," said Socialist leader Antonio Jose Seguro. "This is foolish; it will lead Portugal into poverty."

While less sharp than in Greece, irritation with calls for austerity from its northern creditor is growing in Portugal: "She is not welcome," said retired mechanic Jose Manuel when asked about Dr Merkel's visit yesterday.