Portugal stung by junk rating, widespread strike
Crisis is a setback on road to economic recovery
LISBON, Portugal – Portugal’s efforts to climb out of its economic crisis suffered a double setback Thursday as its credit rating was downgraded to junk status and a major strike gave voice to broad public outrage over austerity measures that have squeezed living standards.
Portugal’s deepening plight underlined Europe’s difficulties in finding a way out of the continent’s government debt crisis which has recently shown alarming signs of spreading to bigger nations, most notably Italy.
Like others in the 17-country eurozone, Portugal has embarked on a big austerity program to make its debts sustainable.
As in Greece, though, the government’s tough medicine, which is required by international creditors in return for the $104 billion in bailout money, is unpopular. The strike had a huge turnout, making it possibly the biggest walkout in more than 20 years.
International ratings agency Fitch blamed Portugal’s “large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook” for its decision to cut the country’s rating by one notch to BB+. Rival Moody’s already rates Portuguese bonds as junk, but Standard & Poor’s rates them one notch above.
Fitch’s decision to cut Portugal to a non-investment grade will likely mean it’s even more difficult for the country, which is already mired in a deep recession and is witnessing rising levels of unemployment, to return to bond markets by its 2013 goal. That raises the unappetizing prospect that Portugal, like Greece, may need a second bailout.
The 24-hour strike was called by Portugal’s two largest trade union confederations, representing more than 1 million mostly blue-collar workers. Much of the private sector remained open for business, but a huge Volkswagen car plant south of Lisbon, which accounts for 10 percent of Portuguese exports, decided to shut down production for the day because of problems facing its suppliers.
Much of the disruption was centered on the transport sector. Airlines canceled hundreds of international flights, and the airports of Lisbon, Porto and Faro were mostly empty as tens of thousands of workers walked off the job. Commuters had to get to work without regular bus or train services. The Lisbon subway was shut, and police said roads into the capital were more congested than normal.
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