* Crisis hit just after recovery from its own housing bust
* Like others, Portuguese have deep faith in single currency
* Governments blamed as unemployment highest since 1980s

By Vitor Moreira and Andrei Khalip

LISBON, Dec 16 (Reuters) - When the global economic crisis hit in the autumn of 2008 there was a joke in Portugal that the world was finally catching up, and stumbling as it had after its own, home-grown housing bust in the early 2000s.

Little did the Portuguese know that such vindictiveness would come back and bite them -- after several years spent fixing the first crisis and putting their house in order through belt tightening, they are now back at square one.

Rating agencies have put Portugal at the back of the class, along with Greece and Spain, warning that any failure to curb growing debts could lead to downgrades of its creditworthiness.

(To see eurozone government debt and bond spreads: here)

The recession will hit Portugal's 10 million people hard -- gross domestic product is expected to contract 2.7 percent this year after flat growth in 2008, according to the central bank.

The budget deficit, now seen by the government at 8 percent of GDP in 2009, will need political will to be brought under control. The government has pledged to bring it back inside the euro zone's 3 percent limit in coming years but has so far ruled out tax hikes.

(To see eurozone government deficits: here)

Like people in many of the euro zone's weaker countries, the Portuguese are more emphatically supportive of their membership of the single currency than of their government.

Being in the euro is a gigantic benefit for the Portuguese economy as it maintains the monetary situation stable, keeps interest rates low, said Prof. Antonio Costa Pinto, a political scientist.

That (leaving the euro) is just not viable, he added. The turbulence from the current crisis would have been enormous.


Being a part of the euro is seen by many in Portugal as a way the country, which in the past looked outward to former colonies across the Atlantic, can be more firmly rooted to Europe where it belongs.

We are in the euro now and we are not going back, said 29-year-old Jose Perreira, who works at the International Labour Organisation.

Unlike in Greece where there have been protests at austerity measures, Portugal has had no mass strikes and while the economy appeared to be slipping fast at the beginning of the year it now seems the worst has passed. [ID:nLDE5BE22T]

Lisbon restaurants are busy again and there are signs that investment is picking up, including in alternative energy -- an area the government hopes can be an engine of growth in the future.

GDP jumped 0.7 percent in the third quarter from the previous three months. Analysts have estimated growth could creep up slowly to just under 1 percent next year.

But the country's debts are also rising fast -- Standard & Poor's warned last week that the debt-to-GDP ratio could rise to more than 90 percent by 2011. Greece's debt-to-GDP ratio is seen rising to 120 percent next year.

(To see government debt-to-GDP ratios: here)

The Portuguese themselves pondered the question of rising debts when a general election in September became a sort of referendum on a series of expensive infrastructure projects supported by the ruling Socialists.

The Socialists won, but were left with a minority -- which makes it unlikely they will muster the necessary support in parliament to fast-track a high-speed rail link that could push the country's debts higher.


Portugal has had many such projects over the years, many of them co-financed by the European Union, but they have not dispelled a lingering concern that such infrastructure plans have left it only with growing debts and no real growth to show for it.

Fernando Ulrich, chief executive of Banco BPI, Portugal's third largest private bank, told a Reuters conference last week that Portugal's real crisis is one of lack of growth, and not a financial crisis like in many other countries.

He said average yearly growth in the past decade had been just 0.5 percent, the slowest in any 10-year period in memory.

That underperformance was well under way before the current crisis, and with unemployment at 10.2 percent, the highest since the 1980s, it has been one of the main factors giving Portuguese time to nurture the view that politicians are the ones to blame for this year's deep recession.

The situation in the country is not only the fault of the present government, but of all recent governments, and the global crisis doesn't make things easier, said civil engineering student Pedro Pessoa.

With faith in politicians low, for many Portuguese the euro represents an anchor of stability.

Have we had no common currency during the crisis, it would only have been worse, said Vera Parreira, an accountant. I think we're safer with the euro than alone. (Writing by Axel Bugge; editing by Peter Apps and Sara Ledwith)