Big week for Portugal and eurozone

It's the start of another big week in the midst of the current economic and financial crisis. Eurozone finance ministers are meeting in Luxembourg today and tomorrow. Portugal's new cabinet under Prime Minister Pedro Passos Coelho will convene on Tuesday. The prime minister will then attend a key European Union council meeting in Brussels on Thursday and Friday.

The new government here faces the massive initial task of navigating the country through what Coelho has referred to as two “terrible years” of deep recession and record unemployment.

At least the right-of-centre Social Democrats in coalition with the conservative CDS-PP party can look forward to a comfortable overall majority in the 230-member parliament. Coelho has kept to his promise and reduced the cabinet from 16 ministers under the previous Socialist administration to just 11 - four from the PSD, three from the CDS-PP and four independents.

One of the independents is Vítor Gaspar, the new finance minister. An economics professor, Gaspar has worked as a research director at the European Central Bank, led the European Commission's Bureau of Policy Advisers and most recently been a special adviser to Portugal's central bank. He will need all his experience and expertise in the daunting task he has taken on.

The main focus of the new government's work will be administering the tough and broad-ranging conditions of the EU/IMF rescue package, a consequence of a debt that had risen by the end of 2010 to €160 billion and a deficit for the year of 9.1 percent of GDP, more than triple the permissible EU rate first breached by Portugal back in 2002.

The meeting of EU finance ministers in Luxembourg is being dominated by the crisis in Greece, but they will also be taking stock of the Portugal's €78 billion bailout. Economic policy will again be top of the agenda in Brussels on Thursday and Friday. Warning that the ongoing debt crisis could spread to Italy and Belgium, Jean-Claude Juncker, who is chairing the eurozone finance ministers'' meeting, reportedly said yesterday: "We are playing with fire.”

In the light of the acute difficulties in Greece, one commentator said the other day: “Continuing to agree last-minute emergency measures to avoid the immediate collapse of a eurozone country is unlikely to create financial trust. And it is even less likely to create the required political trust to effectively tackle the crisis at its root. The EU heads of government and above all Merkel (the German Chancellor) need to take over the agenda and set out a credible narrative for a sustainable and prosperous eurozone or face the inevitable consequences.”

There has been an upsurge in fears about a possible collapse of the euro. Mind you, there has been talk of that ever since the common currency was introduced more than a decade ago.