Portugal claims its is being unfairly tarred over financial crisis - Times Online

There was anger today in Portugal at what was seen as unfair Northern European criticism of the economy. Economists, politicians and commentators feel that despite serious problems, Portugal is not about to follow Greece into the economic quagmire. In a show of strength to the markets, José Sócrates, the Portuguese Prime Minister, and opposition leader Pedro Passos Coelho, of the centre-right Social Democratic Party, were due to meet today to discuss possible new measures to tackle the country´s economic woes.

Mr Passos Coelho called the meeting after Portugal was downgraded by two marks to A- status by the credit agency Standard and Poor´s (S&P). Portugal's public finances have been under the spotlight this year, with investors concerned about its creditworthiness and worried that it may be the next weak link in the eurozone after Greece. The country´s budget deficit last year stood at 9.4 per cent of GDP and its debt is currently 85 per cent of GDP.

The Socialist Government brought in an austerity plan designed to cut the budget deficit to 2.8 per cent of gross domestic product from 9.4 per cent last year. The measures passed by parliament include freezing public sector wages, cutting spending and hiking taxes for high-income earners. The minority Government needs the support of the opposition to pass legislation in parliament and government officials have urged co-operation from the other parties. S&P said in its downgrade for Portugal, however, that "for the country to reach its current targets we expect that the Portuguese Government would need to implement fiscal consolidation over and above its current plans".

In Portugal, however, many rejected suggestions Portugal would require a European Union rescue package like Greece. Rui Martin dos Santos, an economist, told The Times: "There is a feeling of grievance here that certain bodies like the International Monetary Fund have grouped Portugal with countries like Greece. There is a feeling that Portugal and other southern European countries like Spain have been seen as soft targets. "But I remember the crisis of 1993 when our deficit and debt was high and after a few years we came out of that crisis. I think the same will happen again. We can do it again."

Outside Portugal, there were moves to try to restore confidence in the country.

"There is no comparison between the situations of Portugal and Greece," said Jürgen Stark, a member of the European Central Bank Executive Board. "I see no connection between Portugal and Greece, Greece is an individual case," Mr Stark told reporters in Berlin when asked if Portugal was being treated unfairly by markets. Across the border in Spain, there was concern that the euro crisis might spread there. Unemployment in Spain currently stands at 20 per cent, the highest in the eurozone, and the country is mired in the worst recession for decades.

However, in an effort to restore confidence in the ailing Spanish economy José Luis Rodriguez Zapatero, the Spanish Prime Minister, today told parliament that there were signs of growth in the first quarter after retail sales rose in March for the first time since 2007. The economy contracted by 0.1 per cent in the fourth quarter of 2009, marking the seventh successive quarter of negative gross domestic product. Supporting an improvement in Spain´s economy, retail sales rose 2.1 per cent year-on-year in March, the first increase since November 2007. "This data reflects that the economic situation is improving little by little, but we are comparing with a yearly decline of 8.2 per cent in March 2009," said Estefania Ponte, an economist at BNP Paribas Fortis.

Signifincantly, an editorial in El Pais newspaper today, which normally supports the Socialist Government, was sharply critical. "Spain should take note [of Greece]. The deficit is not only due to the Greek contagion but the tardiness in the Government taking correct measures. The Government started an austerity plan of which we know little." Vitor Bento, an economist and head of Portugal´s Multibanco ATM network, said: "The markets and some analysts appear to be looking into the economic realities in the so-called euro periphery through a blurred lens. "By doing so they tend to make easy bundles in spite of some noticeable differences on the underlying fundamentals. The objective view shows that the debt spreads and the ratings still have Portugal closer to Germany than to Greece".