The origins of the financial crisis in Portugal were different to those in Ireland (property bubble), Spain (property bubble), Greece (deficit misreporting) and Cyprus (contagion from Greek crisis), but there are some common elements. Essentially, the Portuguese crisis is rooted in the nation’s relative lack of economic competivity within the Eurozone. Spending during the worst of the financial crisis pushed the deficit up (as it did everywhere in the EU), but investors were dubious about Portugal’s ability to meet these additional obligations. The interest on Portuguese 10-year bonds peaked at an utterly unsustainable 14% and the nation was forced to ask for help from the EU and IMF, receiving a €78 billion bailout in 2011 which will expire next year.
As with all of the bailout packages, the Portuguese fund came with strings attached which aimed to reform the economy through tax changes (including a freeze on certain tax benefits), easing of employment laws and streamlining aspects of the judicial system amongst quite a list of other items. The loan attracts interest of between 5.5 and 6% - none of these bailouts were free. The funding was disbursed in tranches subject to satisfactory progress as judged by the IMF/EU/ECB troika. Naturally, Portugal had to embrace significant austerity measures with the aim of returning the deficit to acceptable levels.
The most recent set of austerity measures have been accepted in the budget (which may be subject to a review by the Constitutional Court). Civil servants will have to endure a pay cut of between 2.5 and 12% if they make more than €675 per month and working hours are set to rise from 35 to 40 per week and lose 3 days of vacation per annum. Those on pensions which surpass a certain limit are likely to face a cut of 10%. The cuts are estimated to affect four in five of the public workforce; about 600000 people. The government hope to reduce the deficit from its current level of 5.5% to 4% next year.