Estimated read time: 5-6 minutes
This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.
LISBON, Portugal (AP) - Portugal wants to look like Ireland, but it can't disguise its resemblance to Greece.
Inspectors from Portugal's bailout creditors arrive in Lisbon on Wednesday for a regular check of the country's fiscal health and its compliance with the stipulations of the 78 billion euro ($106 billion) financial rescue it received in 2011.
As in Ireland and Greece, which got bailouts the year before Portugal, the agreement demanded steep spending cuts and an economic makeover _ part of a continental effort to persuade wary investors to resume lending to some of the eurozone's debt-heavy countries.
With about six months to go before Portugal's rescue cash runs out, it's still unclear whether the Portuguese will be able to make it on their own after June.
The government insists it can follow the same path as Ireland, which will unhook itself from foreign financial support this month. But hurdles remain that could compel Portugal to ask for more help, like Greece did when it got a second bailout, and prolong Europe's debt woes.
Here is a look at some of Portugal's difficulties.
FISCAL BEAUTY CONTEST
To woo hard-nosed investors, the country's financial figures have to look good. Though Portugal's numbers have improved, they're still not very seductive.
The interest rate Portugal has to pay holders of its 10-year bonds _ regarded as a reflection of investor confidence in the country _ is around 6 percent. That is too expensive in the long term for Portugal, though far better than the 17 percent that compelled Lisbon to ask for help. Germany, by contrast, pays less than 2 percent. Portugal's credit rating is still classified as junk by the three main rating agencies.
Budget deficit targets for this and next year were eased as a deep recession extended into a third year in 2013, prompting fears that Portugal, like Greece, was straying off the recovery track. The deficit fell to 6.4 percent of gross domestic product last year, down from 10.1 percent in 2010 but still a way off the desired 3 percent, now the target for 2015.
Unemployment is at 15.7 percent, and the European Commission forecasts it will climb to 17.7 percent next year. Government debt is expected to peak at almost 128 percent of GDP this year, the third highest in the European Union.
The bright spots: The European Commission predicts Portugal will return to growth next year, but only at a rate of 0.8 percent, and exports grew almost 10 percent over the 12 months to last September.
All three of Portugal's main political parties gave their blessing to the initial bailout agreement in a sign of broad consensus welcomed by creditors. But the unity came apart as austerity policies brought hardship.
The center-right coalition government and the main opposition center-left Socialist party are now at loggerheads.
Prime Minister Pedro Passos Coelho says that by abiding by the terms of the bailout his government is creating a nimbler, stronger economy. Socialist leader Antonio Jose Seguro says the austerity measures are corroding the economy and the welfare state.
An early summer political crisis, which saw the finance minister and foreign minister resign in a spat over the scale of austerity, rattled financial markets.
The government has a majority in Parliament that allows it to pass the bailout measures. Its political capital is depleted, however, as this fall it has faced another uptick in strikes and protests.
After sales tax jumped to 23 percent from 13 percent in 2011, and after what the government conceded was an "enormous" increase in personal income taxes this year, more chafing austerity is due in 2014.
Unlike the rioting in Athens, protests in Portugal have been peaceful like those in Dublin. Even so, a demonstration by police that broke through a cordon around Parliament this month suggested the government is skating on thin ice.
HERE COME THE JUDGES
Portugal's Constitutional Court has been the government's bugbear.
Its 13 judges have four times in two years disallowed planned cuts, leaving the government with budget holes amounting to some 1.7 billion euros.
Another standoff is looming: the judges are expected to rule by the end of the year on the legality of cuts to the pension entitlements of government workers, and of widows and widowers. That's another 800 million euros of savings at risk in the 2014 budget.
Ricardo Mamede, a Lisbon University professor of political economics, sees a bigger threat from the slowness of European Union leaders to enact new financial rules that might prevent a repeat of the crisis. Proposals such as establishing procedures for saving troubled banks have fallen foul of political quarrelling as member countries fret about surrendering sovereignty.
"Until the EU finds a way to deal with its dysfunctions, we will be living under great uncertainty," he said.
Granting Portugal a second bailout like Greece would mean taking more money off taxpayers in other European countries. It could also involve telling private-sector lenders they won't get all their money back _ a step known as a "haircut." European governments are not keen on either idea.
Fitch Rating reckons it's not even necessary. "Portugal's debt dynamics are not negative enough to warrant the same treatment as Greece," it said in a recent report.
Analysts estimate Portugal's gross financing needs at around 26 billion euros in 2014 and 25 billion euros in 2015. That's a lot for a country with high borrowing rates, but could be manageable.
Portugal could buy itself time by rolling over debt, something it started doing this week with a bond exchange that pushed back by three years the repayment of 6.6 billion euros of loans.
Most likely, Fitch said, is that Portugal's creditors in the eurozone will grant it easier terms on its rescue loans, such as lower interest rates or longer repayment dates. That would place Lisbon on a course midway between Dublin and Athens.
(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)