http://www.nytimes.com/2012/02/15/business/global/portugals-debt-efforts-may-be-a-warning-for-greece.html?scp=2&sq=portugal&st=cse
LISBON — As debt-plagued Greece struggles to meet Europe’s strict terms for receiving its next round of bailout money, the lesson of Portugal might bear watching.
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What Went Wrong in Portugal?
Portugal swiftly curbed its budget when it accepted international aid, but now the nation is struggling to pay its debts.
Mario Cruz/European Pressphoto Agency
“We have delivered, and our adjustment program stands out in the euro area,” said Vitor Gaspar, Portugal's finance minister.
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Unlike Greece, Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May.
And yet, by the broadest measure of a country’s ability to repay its debts, Portugal is going deeper into the hole.
The ratio of Portugal’s debt to its overall economy, or gross domestic product, was 107 percent when it received the bailout. But the ratio has grown since then, and by next year is expected to reach 118 percent.
That’s not necessarily because Portugal’s overall debt is growing, but because its economy is shrinking. And economists say the same vicious circle could be taking hold elsewhere in Europe.
Two other closely watched countries on the debt list, Spain and Italy, also have rising debt-to-G.D.P. ratios — even though they, like Portugal, have adopted the budget-slashing and tax-raising measures that the European officials and the I.M.F. continue to prescribe.
And on Tuesday, new figures showed that the Greek economy shrank even more than expected last year, as Greece struggles under ever heavier austerity demands by its European lenders.
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