Portuguese wary of bailout pain

Reuters News
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Posted: Apr 10, 2011 9:45 AM
Portuguese wary of bailout pain

By Shrikesh Laxmidas and Axel Bugge

ALENQUER, Portugal (Reuters) - Portugal's need for foreign aid has surprised few in a country where the signs of economic stagnation have been visible for years and politicians are widely regarded as part of the problem.

Alenquer, nestling between vineyard-covered hills 40 km (24 miles) north of Lisbon, is the perfect example: the skeleton of a shuttered textile factory stands at one end of the village and unfinished apartment blocks at the other.

The factory, closed down 15 years ago, is a reminder of how Portugal's traditional industries were forced out of markets as cheaper goods flowed in from elsewhere, especially China.

But the empty apartments illustrate a more common story of how entire regions become depressed -- politicians' promises of a boom via public investment in huge infrastructure projects lure developers in droves, but only until the money runs out.

A project for a new international airport near Alenquer was abandoned, leaving its population of around 30,000 disillusioned over time wasted and without a plan for the future.

That is a bit like the current national situation in Portugal, the third euro zone country, after Greece and Ireland, to seek aid, and where unemployment is already at a three-decade high of 11.1 percent.

The caretaker government predicts the economy will shrink 0.9 percent this year -- its second recession in three years. It has already cut wages and hiked taxes across the board.

"It's hard to understand how we reached a situation like this," said Avelino Antonio, 63, while grilling fish at his 45-seat restaurant in Alenquer. "(Prime Minister Jose) Socrates may have a lot of blame but so do those who came before him."

Manuel Guerra, 55, a doctor at a public hospital in Alenquer, is more direct. "The party political machines took over power a long time ago, thinking about themselves and not the good of the country," he said.

Fears among Portuguese about the future are mounting, fed by reports from Greece and Ireland of the greater austerity and hardship introduced after Brussels and the IMF gave Athens and Dublin bailouts last year.

"People are terrified about what might happen to their lives," said political analyst Marina Costa Lobo.

"GREAT AMBIGUITY"

Last month, the government collapsed due to the rejection of an austerity plan. That set off the events that led to last week's request for a bailout which the Socialist government had resisted for months.

Now, Portugal is in potentially the most complicated political situation of the three euro countries that have sought aid. It has a caretaker government negotiating a bailout at the same time an election campaign is getting under way.

A snap election will be held on June 5.

"It is a moment of great ambiguity. People are more prone to take part in protests and strikes. They are tired of the daily logorrhea by the politicians," said Elisio Estanque, a sociologist at the University of Coimbra.

Social protest is growing, although it is overwhelmingly peaceful. Trains and the undergrounds in Lisbon and Porto have had intermittent strikes for several weeks and public sector unions are planning a general strike on May 6. Several hundred thousand protested against austerity in two rallies in March.

Perhaps the toughest challenge for voters is who to elect at a time when politics have polarized into an endless blame game over who caused the crisis and forced the country to seek help.

The bailout has reminded many Portuguese of the hardship that followed the two previous times the country -- in the late 1970s and early 1980s -- went cap in hand to the IMF.

Socrates, the caretaker socialist prime minister, blames the center-right Social Democrats for creating the situation because they rejected austerity measures that were necessary to soothe market nerves, making it impossible to continue governing.

The Social Democrats accuse the Socialists of not being truthful about the dire economic situation.

"At this moment the political situation is really changing day by day, making it very difficult to predict what will happen," said Costa Lobo.

Opinion polls have been showing the Social Democrats in the lead but few analysts are willing to count out Socrates, who is a strong campaigner. The worst scenario would be if no strong, majority government is voted in at the election, analysts say.

Ironically, the distrust by the Portuguese of their own politicians could make a bailout more palatable.

"The IMF might be worse but at least there will be more controls on the politicians," said Maria Domingas, a vegetable seller at a market stall. "The politicians are all the same."

Many Portuguese recognize their country may have had it too easy since it first joined the European Union in 1986 after a four-decade dictatorship ended in 1974. It benefited from plenty of cash transfers from Brussels, much of it used on roads and other infrastructure.

"Our problem now is the same as when we joined the EU: will we use the help to do something for change or will it just be used to cover the hole so we can start to dig a new one," said Sara Magalhaes, 37, a biology researcher at Lisbon University.

(Additional reporting by Andrei Khalip, Editing by Jeffrey Heller)