Paris/Lisbon: Dogged by a track record of sub-par economic growth and stubborn debt, Portugal will have to commit to public spending cuts if it wants to prevent financial markets losing confidence like they are doing with Greece.
After a decade of GDP growth of not much more than half the euro zone average, Western Europe's poorest economy can rely less than others on the debt-shrinking power of a post-recession upturn in Europe and faces pressure to provide a credible alternative when a long-delayed 2010 budget bill is hatched on January 26.
That pressure was highlighted on Thursday when market fears over fiscal weaknesses drove the premium demanded to hold Greek government bonds higher than any time since it joined the euro in 2001, and in its wake pushed similar costs for Portugal to their highest since last July.
"While I do not think Portugal is in as delicate a situation as Greece, I think it is next in line," said Marco Annunziata, who is chief economist at UniCredit bank.
Portugal's budget deficit is believed to have tripled to 8.0 per cent in 2009, will stay thereabouts in 2010 and further swell in 2011 without corrective action, according to European Commission figures that also show gross debt swelling to 91.1 per cent of GDP in 2011.
Those overshoots look daunting if the government balks at politically sensitive public spending cuts recommended by the International Monetary Fund among others, while doubts about the reliability of the data could make Lisbon's job even tougher.
The IMF says Portugal should at least stabilise its deficit this year and estimates this requires fiscal tightening worth at least a half of a percentage point of GDP in 2010 alone.
