Merkel booed as she praises cuts in bailed-out Portugal

German Chancellor Angela Merkel acclaimed Portugal’s austerity cuts during a visit to Lisbon on Monday but was met by furious protesters who draped city monuments in black sheets.

The German leader’s praise for the government’s spending cuts and sharp tax increases fell on deaf ears among demonstrators, who booed and brandished banners accusing her of seeking European domination.

Merkel’s trip coincided with the latest review of Lisbon’s 78-billion-euro ($101-billion) international bailout programme, extended on condition the country make vast budget savings to plug a bulging public deficit.

“The programme is being applied by Portugal in an excellent manner. It is a great exploit,” Merkel said at a joint news conference with Prime Minister Pedro Passos Coelho.

“My visit is a chance to get to know the country better and to bring hope. I sense a great determination to overcome a difficult situation. Germany wants to support Portugal.”

The Portuguese premier, who spoke with Merkel in an ancient fort at the mouth of the River Tagus, vowed not to be deterred from a steep cost-cutting drive.

“Hesitating in our programme, doubting our capacity to respect it, would ill serve the Portuguese and Europe, too,” he warned.

Such doubts led Fitch to keep Portugal’s BB+ speculative-grade rating on negative outlook.

While it affirmed the rating and noted progress Portugal has made in implementing its austerity programme, Fitch warned “cross-party commitment to its implementation and social cohesion are being tested by the 2013 budget”.

In the first major rift on economic policy, the main opposition Socialist party refused last month to support the 2013 budget.

Those hit by tight-fisted fiscal policies, which are whipping up a crescendo of popular opposition in a string of stricken eurozone states, have voiced deep opposition.

Police deployed in large numbers in Lisbon, blocking off some streets and keeping at bay demonstrators who booed Merkel as she arrived at the presidential headquarters.

Activists brandished banners reading: “She wants to kill the Portuguese, she wants supremacy in Europe!”; “Portugal is not Merkel’s country”; “Angela Merkel assassin”; and “A European Germany yes, a German Europe no”.

Demonstrators released black balloons in a sign of “mourning” and covered several Lisbon monuments in black sheets to show their discontent.

At the same time, the European Commission, European Central Bank and International Monetary Fund began a quarterly review of Lisbon’s progress in meeting the terms of its bailout.

The one-week mission will decide whether to release the next 2.5-billion-euro payment from the programme, agreed in May 2011. Merkel said she was “convinced” it would be disbursed.

In a previous review, the powers behind the bailout relaxed Portugal’s deficit targets in part because of the damage the cut-backs had wrought on the economy, which is in recession with record unemployment.

On the eve of Merkel’s visit, Greece’s parliament agreed to deeply unpopular 2013 budget cuts, including lowering salaries and pensions, to unlock a payment from its international bailout.

Spain, the eurozone’s fourth largest economy, is holding off seeking a rescue, which would also come with strict conditions.

For the moment, Spain is benefitting from lower borrowing costs after the European Central Bank expressed its willingness to buy Spanish bonds if Madrid triggers a bailout.

Portugal’s centre-right government has already swallowed the budget pill, adopting last month a budget for 2013 that includes swingeing public spending cuts and sharp tax increases.

The prime minister has undertaken to lower the public deficit to the equivalent of 4.5 percent of gross domestic product next year, from a target of 5.0 percent this year.

His government is seeking 5.3 billion euros in savings in the 2013 budget, 80 percent of which is coming from tax hikes.