Analysis: Investors cheer Portugal, on ground situation bleak

Fri Feb 1, 2013 5:44am EST
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By Axel Bugge and Andrei Khalip

LISBON (Reuters) - Portuguese consumer confidence is at record lows, unemployment at all-time highs and the country has launched the largest tax rises in living memory. Yet investors are snapping up its bonds and its international lenders are full of praise.

In perhaps the starkest example of the gap between renewed investor appetite and languishing economies, Portugal has started 2013 on its strongest footing since it was bailed out in mid-2011, with confidence boosted by hopes it will relinquish its lifeline from the European Union and IMF as scheduled.

Investors bought 2.5 billion euros of Portuguese 5-year bonds last week in the country's first issue since its bailout, returning it to the market many months earlier than planned. Struggling Spain and Italy have benefited from similar bond market largesse.

Yet on the streets people are braced for severe hardship in 2013 as they lose up to two months' wages to the tax man after years of grinding austerity.

With almost a sixth of the workforce unemployed and shops and restaurants shut down in record numbers, selling bonds or improving the current account deficit is meaningless to ordinary people.

"The government bangs on about a lot of stuff but down on the ground things are different. The return to the (bond) markets was a farce, it means nothing to me," said Adelino Santos, 54, who works for Portugal Telecom in Lisbon.

"I am bracing myself for the hammering of the tax hikes when they kick in. Unfortunately, I think 2013 is going to be even worse than 2012."

LA VIDA LOW-COST   Continued...

A man walks past supermarket carts that are lined outside, in Lisbon January 30, 2013. REUTERS/Jose Manuel Ribeiro