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Promises based on forecasts stretch credibility

Portugal’s new Social Democrat government is committed to reducing to zero the public deficit, now perilously close to the EU’s 3% ceiling, and increasing GDP growth by at least 50%. But do the figures add up, and can investors be persuaded to bankroll economic growth?

AMONG EU COUNTRIES, Portugal boasts one of the lowest rates of unemployment - a continuing legacy, one might think, of the boom-time late 1990s. But scratching beneath the surface reveals quite a different picture. "We have 4.5% unemployment but that's an illusion," says a banker. "There should be more unemployment." With a public deficit already close to 3%, that's a worrying thought. During the years of socialist rule, from 1995 to 2001, the number employed by the civil service rose to excessive levels.

Unemployment peaked at 8% in 1996 but fell within four years to just under 4.5%. By the end of their term in office, the Socialist party was spending the equivalent of 15% of GDP on public sector wages.

A quick encounter with the finance ministry in Lisbon betrays how misguided public expenditure has become in Portugal. Rambling corridors open off into large, airy offices where only one or two staff sit at uncluttered desks. Numerous other rooms, in what must surely be among Lisbon's most expensive office space, house nothing but printers and photocopiers - a sure mark of Portugal's overwhelming bureaucracy. The one thing that's missing is security guards.

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