If there’s one country keeping a close eye on what’s happening these days in Greece, it is Portugal.
Bailed out by the European Union and the International Monetary Fund in 2011, Portugal has been waging its own battles with austerity, high unemployment—particularly among its youth—and mandated debt reduction. It too has grown disenchanted with belt-tightening measures imposed for years on end, and despite being held up as an example of success in conquering its financial woes, the country has begun to question the necessity for prolonged harsh measures.
Portugal successfully exited its bailout in May of last year, but changes to its labor markets and legal systems, among others, that were imposed at the behest of its lenders have been wildly unpopular, with protests and demonstrations expressing the dissatisfaction of Portuguese voters.
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In March a fresh wave of demonstrations rocked the country as Prime Minister Pedro Passos Coelho was accused of failing to pay his own taxes on time. And with elections to be held later in the year, the government’s insistence that it plans to continue to impose strict financial conditions is making people think twice about who they plan to vote for.
That said, Portugal’s economy has been growing, with the Lisbon-based National Statistics Institute saying at the end of May that the country’s GDP rose 0.4% in the first quarter of the year on increased investment and household spending. But considering that the unemployment rate rose for the second quarter in a row to 13.7% during Q1 2015, and exports—which were projected by the government to help fuel growth in the Portuguese economy this year—fell 0.3% for the quarter, it’s a very mixed picture.
In May, the Bank of Portugal warned that the country’s banks had high exposure to both government bonds and the real estate sector, and that presents a risk to financial stability. In its latest report on financial stability, the bank warned investors to “pay attention to the impact of a possible abrupt reversal of market sentiment” in debt markets.