Bailout may bring down
the Socialist government

The guessing game has reached fever pitch: will Portugal have to succumb to a financial bailout or not? While the country's top political leaders stubbornly say no, many commentators say it is inevitable. The answer may decide the future of the present minority Government.

It may all seem a bit academic to ordinary folks faced with 23% value-added tax, pay cuts and worrying employment prospects, but the bailout controversy is becoming pivotal.

Socialist Prime Minister José Sócrates has said repeatedly over most of the past year that he will do whatever it takes to avert the need for an international financial rescue. Responding to new claims that Germany and France are set to push Portugal into accepting a bailout, Aníbal Cavaco Silva, former Social Democrat prime minister and current president of Portugal, says Portugal has no intention of asking the IMF or the EU for financial help.

German Chancellor Angela Merkel says Portugal has not asked for help and Germany is not pushing Portugal into it. EU Monetary Affairs Commissioner, Olli Rehn, says there had been no formal discussion about a bailout for Portugal and none is envisaged “at this stage”.

Reassuring remarks have also come from Spain where Economy Minister Elena Salgado said this week that Portugal won't need a bailout because it is “enacting reforms that will help save the nation's economy from imploding”.

Greece and Ireland repeatedly denied that they were seeking a bailout before they accepted rescue packages amounting to €85bn and €110bn respectively. Many analysts believe the Portuguese government is trying to avert the unavoidable. To stop the financial crisis spreading further, some commentators reckon that Portugal will need between €60bn and €80bn. They say a bailout looks certain to happen in the first half of this year.

“Economists fear that Portugal's economy cannot grow quickly enough to avoid being forced into a bailout,” according to the Guardian. There is a growing feeling in the markets that Portugal is heading towards requiring a financial rescue as borrowing costs are now at potentially unsustainable levels, according to the Associated Press agency. Just as the Prime Minister was trying to quash persistent talk of a bailout, the Bank of Portugal released its gloomy prediction today, Tuesday, that the economy will shrink by 1.3% this year.

Meanwhile, President Cavaco Silva has reiterated that nothing should be done to make “the government's life more difficult” as it works to avert a bailout. This seems to be a pointed warning to his own supporters who have become increasingly critical of the government's handling of the economy.

As the nation prepares for a presidential election on 23rd of this month, Cavaco Silva's popularity is such that he seems assured a second term. He is being backed by the Social Democrats who backed the Socialist government's austerity measures at the end of last year, but who are now demanding Sócrates' resignation if Portugal succumbs to a bailout.

The leader of the Social Democratic Party, Pedro Passos Coelho, says it is necessary to “turn the page” and elect a new government to bring a fresh approach to Portugal's economic woes.