By Axel Bugge
LISBON, Feb 25 (Reuters) - Portugal’s lenders were met by determined opposition to the austerity they have imposed on the country, with politicians and campaigners on all sides now calling for an easing of the hardship.
European Union and IMF officials on Monday started their seventh review of Portugal’s 78-billion-euro bailout deal, which the country signed in mid-2011 to stave off national bankruptcy.
Even though Portugal has impressed financial markets up to now with its ability to meet tough budget goals, it looks set to miss its latest fiscal target after the economy took a turn for the worse at the end of last year.
With a recession entering a third year and consumers facing the biggest tax hikes in living memory, pressure is mounting for a loosening of the austerity.
“It is time to lift the veil of illusions,” said daily Publico in an editorial on Monday. “The adjustment programme has failed. It is time to reformulate it, correct it and adjust it to reality.”
The centre-right government signalled last week it intends to request an easing of budget goals for this year and next after already obtaining a relaxation last year as tax revenues fell short due to deep recession.
Investors have snapped up Portuguese bonds in the past year in the expectation that the country will continue to receive support from its creditors.
But Portugal remains mired in its deepest downturn since the 1970s, with unemployment at record levels just under 17 percent.
“The problem is that if the recession deepens the budget goals become more difficult,” said Rui Barbara, chief economist at Banco Carregosa.
“Basically, the troika has to give attention to the impact the measures are having on GDP and unemployment. The focus seems to be the government’s request for one more year, let’s wait and see.”
The European Commission already downgraded its 2013 forecast for Portugal on Friday, to a contraction of 1.9 percent, from a previous estimate of a 1 percent decline. The economy slumped a larger-than-expected 3.2 percent last year.
The commission also raised its budget deficit forecast for 2013 to 4.9 percent, compared to the country’s official goal of 4.5 percent.
Previous reviews by the ‘troika’ of lenders - the European Commission, European Central Bank and IMF - have lasted about two weeks, during which the government has faced widespread demands for changes to its plans.
With grinding austerity set to deepen this year as the government launches huge tax hikes and plans to cut 4 billion euros in spending, opposition seems certain to be voiced during the latest review.
“The country is headed towards misery, we are facing an imminent social tragedy,” said Ricardo Morte, a member of the “Screw the Troika” movement which plans a mass protest on Saturday. “We are going through a calm before the storm as a million and a half Portuguese are unemployed.”
The Portuguese had shown great tolerance for austerity compared with countries like Greece with its frequent protests and strikes. But opposition has begun to rise in the past few weeks.
Government ministers, including the prime minister have been met with opponents singing ‘Grandola, Vila Morena’ - the signal song for the country’s 1974 revolution against decades of dictatorship - on several occasions in the past few weeks.
“This is a warning cry,” said Morte. “The government has its back turned to the people.”
But despite such warnings, investors have shown faith in Portugal’s adjustment by snapping up its bonds in the past year and driving its 10-year yields down to around 6.3 percent now from over 17 percent a year ago.
The EU and IMF officials, who have previously praised the country for its austerity drive, are also likely to be impressed by the country’s first bond sale since the bailout.
Portugal issued a 2.5 billion five-year bond in January.
Under the bailout, Portugal was originally envisaged to only return to bond markets gradually during the second half of this year.