Merkel to visit Lisbon, back austerity regime

LISBON Sun Nov 11, 2012 7:00pm EST

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LISBON Nov 12 (Reuters) - Angela Merkel flies to Lisbon on Monday, bringing her personal endorsement for a government battling to cut deficits under the terms of a German-backed bailout as Portugal suffers its deepest slump since the 1970s.

"Portugal is meeting the commitments it has assumed very well," the chancellor told Portuguese broadcaster RTP on Sunday - a vote of confidence fellow conservative Prime Minister Pedro Passos Coelho will welcome, as he presses compatriots to take more pain and tries to distance Portugal from troubled Greece.

Merkel can expect less enthusiasm from the premier's opponents now that stoic Portuguese patience with austerity, once much remarked on, has begun to fray; but she can expect a largely polite reception, without the tear gas and Nazi taunts which greeted her on the streets of Athens a month ago.

The visit, her first such direct government meeting in Portugal since she took office seven years ago, may also serve her interests back home, by demonstrating to German voters that cash they put in to euro zone rescue funds is being well used.

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.

Merkel will be confronted by some protests from Portuguese fed up with austerity and whose tolerance of spending cuts and tax hikes seemed to snap as summer ended a couple of months ago. A government proposal to raise social security contributions prompted the country's biggest demonstrations in years.

Police are reinforced for the six-hour visit, which has been front-page news locally for days. But despite some popular anger against German tutelage, little violence is expected.

CONSENSUS ENDED

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 Merkel's visit in Lisbon. "She should go and boss around the people in her own country," he said, taking a screwdriver from his pocket and waving it in the air in anger.

By Sunday, somewhat more than 2,000 people on Facebook had said they would join a protest against Merkel; in another online campaign, people have been urged to wear mourning black on Monday to register disapproval; and a local clothing supplier with an eye for topical publicity is offering T-shirts blazoned with the command "Obey!", printed in English, on the front.

After meeting the head of state, President Anibal Cavaco Silva, Merkel will share a working lunch with Passos Coelho and address a German-Portuguese business forum. Ministers hope to attract new German investment in Portugal - a Volkswagen vehicle plant outside Lisbon is the country's single biggest exporter.

Merkel's aims, as she prepares for an election in a year, will include reassuring Germans back home that coming to the aid of countries like Portugal was in Germany's interests, and that southern Europeans are working to repay their debts and recover.

Lisbon has been held up as a model in Berlin for knuckling down to reduce public deficits. Passos Coelho will want to capitalise on that, not least to differentiate the country from struggling Greece, and hope instead to show it can emulate the recovery of the euro zone's other bailout recipient, Ireland.

"There is obviously a lot of sympathy for the pain of the Greek people," Portugal's ambassador to Berlin said last week.

"But there is also the sentiment that we are different."

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