Portugal Gets No Love; Tick Tock Runs the Debt Clock…

“Stuffed into a time capsule, this ancient university town’s local newspaper would give future historians a good idea of the pain that Europe’s first financial crisis of the century inflicted on Portugal.

David Dear | Photographer’s Choice | Getty Images

The Diario de Coimbra reported on its front page last Thursday how bankers had called in a loan on a local sports stadium. A piece on the back page asked whether a rise in suicide rates was linked to the deepening economic downturn.

A bank advertised the auction of 38 foreclosed properties. Other ads promoted some of the many gold and silver dealerships that have sprung up since the onset of the crisis for people forced to sell the family jewels.

Burdened with public debt that will approach 120 percent of national output this year, Portugal is suffering so badly that many in the market wonder whether, along with Greece, it can escape its debt trap without abandoning Europe’s single currency.

The economy is contracting sharply due to tax increases and spending cuts demanded last May by the International Monetary Fund  , the European Union and the European Central Bank in return for an emergency78 billion euro loan.

Output is projected to shrivel 3.3 percent this year, after a fall of 1.6 percent in 2011. With tax revenues withering, the government’s core budget deficit nearly tripled in January and February. Unemployment jumped to 14 percent in the fourth quarter of 2011 as slumping domestic demand was compounded by a dearth of credit, forcing small and medium-sized enterprises to shed labour.

“The financial sector just isn’t injecting money into the economy,” said the president of Centro region’s chamber of commerce, Jose Couto. Coimbra, two hours north of Lisbon by train, is Centro’s largest city. “It’s got to the point where even viable export companies are having problems managing their cash flow.”

Read more