Portugal takes to austerity to avoid EU bailout package

Written by Reuters | Lisbon | Updated: May 1 2010, 03:57am hrs
Portugal should be able to avoid being the next country after Greece to need an EU bailout as there is a strong likelihood that an austerity plan announced last month will gain parliamentary approval and then be accepted by the masses without violent protests.

But with its bonds being hammered by investors, Portugal will have to beef up the plan with unpopular measures like indirect tax hikes, spending cuts and possibly Irish-style wage reductions, or risk a full-blown confidence crisis, analysts say.

We're in the dynamics of contagion from Greece, which will force the government to widen the existing measures, said Jose Brandao de Brito, an economist at Millennium bcp bank. I think theres still time to do so. Portugal needs to control the budget deficit while it's still controllable. New measures should be both on the budget consolidation side and to boost competitiveness by making the job market flexible, he said.