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Banks tell Portugal to get its house in order

Local firms are finding their own difficulties with funding and credit exacerbated by national crises in growth, inflation and a fiscal deficit. Can they get out of this vicious circle? Nick Kochan reports from Lisbon.

THE MESSAGE OF the Portuguese bankers to their new government, elected on June 6, is blunt. Effectively: "We’re putting our house in order, now you do the same!" At a time when the banks are dealing with high levels of outstanding debt and worrying ratios of capital to risk-weighted assets and deposits to credit, the country is being forced to respond to the ravages of low to negative growth, rising inflation and, most worrying, a fiscal deficit close to 10%. All the main Portuguese political parties have vowed to apply a series of austerity measures, dictated by the troika of the European Central Bank, the IMF and the European Commission, as a quid pro quo for a €78 billion bailout. Bankers and others wait to see how the new government, whichever party is elected to power, deals with the social and economic costs of such an austere plan. It will not be far from bankers’ minds that the last government fell when an austerity package was defeated in parliament. Observers believe this will be a salutary lesson for the next government as it faces the same unenviable challenge.

The troika has laid out a programme to bring the government’s fiscal deficit, presently standing at 9.1%,

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