Portugal's caretaker prime minister Jose Socrates says he has reached agreement on a bail-out from the EU and the International Monetary Fund. read the CNN headlines on May 4, 2011. Headlines just last week read  Portugal's PM Says Country Will Not Seek Additional Bailout Funds  followed within hours, Portugal's borrowing rates rise to record 19.4%. New high arrives amid fears that bailed-out country will not be able to break free of financial crisis. Where is all this heading. Portugal can not continue to sell bonds at this rate as they will never be able to pay the interest or the principle.

Last week, credit default swaps for Portugals debt skyrocketed.

Portugal needed a €78bn (£65bn) rescue package last year as its high debt load and feeble growth pushed it towards bankruptcy.

The EU/ECB bailed out Portugal, forcing on them a three-year program of austerity measures and economic reforms is aimed at restoring investor confidence in the country, but a deepening recession, with a 3.1% contraction forecast for this year, is undermining the faith of the markets in Portugal. This program was identical to the guide laid out in Greece which is now failing.

A
A Travelers Guide to Bailout Countries

Just last week, Angela Merkel, admited in an interview with the UK Gaurdian, that the harsh austerity measures alone are not working as planned.

Ireland, recently revised their budget and austerity program independently, before they were headed back to crisis. Greece was too late and Portugal is too late.

The programs dictated by the EU leadership along with the ECB and IMF were so concerned with reducing government spending to cut deficits, it overlooked growth. Austerity is desperately needed but combined with a plan of growth and development, which ultimately is more important.

David Cameron, Prime Minister of the UK, forced his country to accept harsh austerity measures, and saw it almost fail, until they decided to push growth, jobs and development, they still face skyrocketing unemployment.

width=150

Last week Spain, released their unemployment figures which are now above 22.%.

This week, Fitch Ratings downgraded euro-zone countries, Italy, Spain, Belgium, Cyprus and Slovenia, while affirming Ireland's credit rating as it completed a ratings review that was announced last month. All six countries continue to carry a negative outlook.

Portugal last year  agreed to harsh measures in exchange for the loan, which includes 12 billion euros of support for the country's banks, These include:

  • a cut in the public sector wage bill by freezing wages and limiting job promotion
  • an increase in sales tax on items such as cars and tobacco
  • the privatization of stakes in national energy companies and the sale of national airline TAP Air Portugal
  • the reduction of the most generous state pensions and the freezing of others
  • the maximum length unemployment benefit can be paid to be cut to 18 months, from 3 years.

In just 9 months Portugal is again running out of money, with no where to turn to except the EU and ECB or to the IMF, the lender of last resorts.

The question facing Angela Merkel and President Sarkozy, is how do you make a country grow while reducing their spending. And more importantly where does the money come from to keep bailing out countries.