Portugal

With its massive austerity measures, Portugal has become the poster child of the troika of the EU, ECB and IMF. But the country is still stuck in a deep recession and it is unclear how it will return to growth. It may need to rely on European loans for years to come, Spiegel Online reported. Portugal's prime minister expects government employees at their desks and working on Entrudo, the traditional high point of the country's Carnival celebrations, which falls on this Tuesday.

Portugal's unemployment rate jumped to 14% in the final three months of last year, surprising economists and suggesting that austerity measures being implemented under the country's international bailout are creating a bigger-than-expected dent in the economy, The Wall Street Journal reported. A total of 771,000 people were without jobs in the fourth quarter, up from the previous quarter when the jobless rate stood at 12.4%, the country's national statistics bureau said Thursday.

Economic output in Greece and Portugal plunged last year, according to figures released on Tuesday, challenging the prevailing European view that fiscal belt-tightening will foster growth, The Wall Street Journal reported. Greek gross domestic product fell 7% in the fourth quarter from the year-earlier span, the country's statistics agency said, bringing the total GDP drop since the end of 2007 to more than 16%. Greece's statistics service hasn't issued quarter-to-quarter data for the past several quarters because of methodological problems adjusting for seasonal swings in activity.

European policy makers have begun to worry about similarities between the Portuguese and Greek economies that they fear could derail Portugal's €78 billion ($103 billion) bailout program, The Wall Street Journal reported. That would raise further doubts about the strategy for resolving the euro-zone government debt crisis, which has centered on rapid cuts in budget deficits. If Portugal's program fails, it will add fuel to arguments that the medicine prescribed by Europe undermines growth and thus weakens governments' ability to shoulder large debt burdens.

Greece may breathe a sigh of relief when—or if—it finally completes its long-delayed debt restructuring next week. But the plodding negotiations have been bad news for another country: Portugal, whose creditors fear they may be force-fed the same difficult debt restructuring terms that are on the table for the Greeks, The Wall Street Journal reported.

Investors, economists and politicians are increasingly concerned that Portugal will need a second bailout as fears mount that it won't be able to return to markets for financing next year, The Wall Street Journal reported. While the Portuguese government's finances are covered this year as long as it abides by its bailout agreement, Portugal must regain full access to capital markets next year to help repay €9 billion ($11.64 billion) in debt coming due in September 2013.

Portugal is trading in default territory after investors offloaded the country’s bonds this week amid rising fears of contagion. Worries are mounting that the private sector and Greece will fail to agree a restructuring package for Athens’ debt, the Financial Times reported. Many investors were also forced to sell Portuguese bonds after Standard & Poor’s downgraded the country to junk on Friday. Other funds sold Portuguese debt after Lisbon was removed from Citigroup’s European Bond Index, which these investors track, because of its fall to junk status.

Portugal's black economy expanded to a quarter of GDP in 2010, denying the debt-ridden country much-needed tax revenues, and probably grew further last year after tax rises, according to a new study, the Irish Times reported. The estimated 2.5 per cent increase in the shadow economy in 2010, although modest, is bad news for the centre-right government which has been implementing painful austerity measures under a €78 billion EU-IMF bailout to cut the budget deficit and rein in rising debt.

Portugal's central bank Tuesday sharply lowered its economic outlook for 2012, citing a worse-than-expected drop in internal demand, and warned that instability in the euro zone and the global economy could hurt exports, The Wall Street Journal reported. In its winter report, the Bank of Portugal said it now expects the economy to contract 3.1% this year. Its fall forecast called for a 2.2% contraction. The government has put the number at 3%. Portugal's woes underscore the challenge many euro-zone countries face currently.

A strike by Portuguese public transport workers shut down national train services and the Lisbon subway Tuesday in the latest major protest against austerity measures designed to reduce the country's crippling debt burden, the Associated Press reported. Staff at the state-owned rail company Comboios de Portugal and the Lisbon subway walked off the job during the morning rush-hour. Bus and ferry workers were also due to stop work later in the day.