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Merkel visits Portugal to defend unpopular austerity

Published on 13/11/2012

German Chancellor Angela Merkel headed to bailed-out Portugal on Monday to defend Lisbon's sweeping austerity cuts in the face of swelling street protests.

Merkel’s trip coincides with a review of Lisbon’s 78-billion-euro ($101-billion) international bailout and comes at a time of a growing outcry in the eurozone over the impact of austerity measures.

Demonstrators have called a protest against the visit by the German leader, maligned by many as the European paymaster behind severe cut-backs designed to fix state finances even during a recession.

The biggest union CGTP said it planned a protest “in defence of national sovereignty” while activists from the “indignant” movement said they would rally under the slogan “Merkel out!”.

Despite the hardship, the German leader said there was no need for a renegotiation of Portugal’s stringent programme, which has already been relaxed, and no need for a second bail-out.

“I think a lot of people will voice the difficulties they face because of the austerity measures,” Merkel said in an interview with Portugal’s RTP television on the eve of her visit.

“Of course a programme of this kind sparks major debate but the government has shown great courage in taking these measures and I have the greatest respect for what this country is doing,” she added.

“At this stage there is no reason for a renegotiation. Portugal is respecting its commitments with courage.”

Merkel will meet President Anibal Cavco Silva before holding talks with Prime Minister Pedro Passos Coelho in an ancient fort at the mouth of the River Tagus.

At the same time, the European Commission, European Central Bank and International Monetary Fund will conduct 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. A member of the Portuguese government said “it should go well”.

At its last visit, 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.

Merkel’s visit comes at a pivotal time in the eurozone crisis.

On the eve of her trip, 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 has already swallowed the budget pill. Its centre-right coalition last month adopted an austerity 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 coming from tax hikes.