Portugal to Sink in Recession for the Next Two Years

Steven Bobson, Europe & Americas Editor
May 11, 2011 /

After a month from Portugal caretaker Prime Minister Jose Socrates’ decision to seek financial aid from the European Union to save its rapidly deteriorating economy, Portugal is expected to undergo recession in the next two years because of the €78 billion ($116 billion) rescue deal, said Portugal finance minister Fernando Teixeira dos Santos.

The austerity measures of the bailout caused forecasts for 2011 and 2012 of the Portugese economy to shrink by 2 percent.

Under the bail-out terms, a programme of privatizations will be added, pensions exceeding 1,500 euros will be cut and sales tax on some products will rise.

For European Union mission leader Juergen Kroeger, the terms were tough but they were nevertheless necessary and fair. He has accepted that the changes being demanded were front-loaded and painful for the country but they were needed to address urgent issues.

In an address to the Portugese people, Kroeger explained that the major structural reforms is for a good reason because it fosters competitiveness by aiming at returning to growth and employment in Portugal in the end. It particularly targets to cut the country’s current deficit of 9.1 percent, which is three times the eurozone’s limit, to 3 percent by 2013.

However, there is key unknown condition of the rescue deal and it it the interest rate Portugal will pay to borrow the money. It will be decided on May 16 this year as European finance ministers meet on that day

Other austerity measures that are provided the bailout terms include changes in labor market laws and social benefits.


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