Portugal braced for prolonged austerity

PORTUGUESE VOTERS are braced for a long period of austerity, high unemployment and falling living standards as the country prepares to negotiate an €80 billion bailout agreement.

“I’m spending less on food,” said Fátima Esteves (67), a retired teacher in Lisbon. “But my biggest worry is that I won’t be able to afford my medicines.”

EU finance ministers meeting in Budapest yesterday made clear that tough conditions would be imposed in return for the aid programme that Lisbon formally requested on Thursday night.

“The package must be really strict because otherwise it doesn’t make sense,” said Jyrki Katainen, Finland’s finance minister. “It must be harder and more comprehensive than the one parliament voted against.”

That package, including a proposed tax of up to 10 per cent on pensions above €1,500 a month, was voted down by opposition parties on March 23rd, triggering a snap election on June 5th.

“Everyone knows life is going to get a lot tougher,” said Beatriz Neves (36), a graphic designer. “Above all, we’re worried about losing our jobs.”

Unemployment is expected to reach a 15-year high above 11 per cent this year as the economy contracts by about 1.3 per cent, according to central bank forecasts, in what will be Portugal’s second recession in three years.

Henrique Luz Rodrigues (64), a Lisbon doctor, expects social tensions to increase. In the 1980s, when Portugal twice had to seek help from the International Monetary Fund, the number of burglaries and assaults went up sharply, he wrote in a newspaper column.

“I fear the same will happen again. We could go backwards socially by 10 or 20 years.”

Portuguese officials will be negotiating the aid package in the build-up to the election, raising concern that political leaders will try to play down the severity of unavoidable austerity measures.

“Voters are not being given a clear picture of the gravity of the financial crisis or the severity of the adjustments that will be required,” José Pacheco Pereira, a historian and political commentator, said in a television debate.

Over the past year, the outgoing government has cut public sector wages, frozen state pensions, increased value-added tax and cut welfare payments in an attempt to bring state deficits under control.

Economists, however, fear much tougher measures will be needed.

Some expect the extra month’s pay that Portuguese workers receive in the summer and at Christmas could be subject to a special tax. Pension freezes are also expected to be extended and tax benefits reduced. – (Copyright The Financial Times Limited 2011)