Today's general strike, called by the vast General Confederation of Portuguese Workers (CGTP) union, is not expected to bring the country to a halt – although this morning the Lisbon subway system was closed. But it does offer a vivid warning to investors and analysts as they watch Portugal's head towards the bailout-or-default cliff, where Greece tottered for months. As in Greece, the people are taking to the streets; and as in Greece, the sight is bound to attract the bond-market vultures.
The cuts that kill
The strike is over cuts, of course. Portugal's €78bn bailout package from the International Monetary Fund and European Union, agreed last May, came at the usual price: slashed spending on core services, such as health and education, slashed public sector benefits, and harsher hiring and firing laws. These cuts have caused nothing but pain: Portugal's fragile economy is no more stable as a result. Official forecasts are for the economy to contract by 3.3% this year. Unemployment will rise to 14.5%.
Maria Isabel Martins, 53, told the Guardian earlier this week how her regular 210km trip from a remote village to see a consultant about her diabetes now cost €44 each visit: both the consultation and the bus trip used to be free. "This is shameful," she said. Opposition politicians claim that healthcare reforms forced by the bailout caused 1,000 deaths in February.
How close to the edge?
Speculative traders have aggressively targeted Portuguese debt since the Greek debt deal was finally settled last week. The small country looks like easy prey. According to the Financial Times, the credit insuring (CDS) market is already betting on a Portuguese default. On the other hand, if Portugal can stabilise its debt with the help of private money (rather than more EU bailout funds), that could reassure markets and prop up the entire eurozone rescue plan.
It's still possible, but extremely difficult. Portuguese debt was measured at 110% of GDP last year. On Monday, the yield on the government's 10-year bonds was still more than 13% – a clear sign that the markets lack confidence in Portugal's ability to keep up debt repayments, and double the level considered remotely sustainable for the country to borrow on its own. Goldman Sachs sees Portugal needing an injection of up to €50bn more between now and 2014. And inevitably, while analysts crunch the numbers, it will be ordinary Portuguese citizens like Maria Isabel Martins who continue to shoulder the burden.
Further reading: The Economist reports on Portugal's big financial mess.