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Train strike adds to debt-laden Portugal's woes

By Barry Hatton

Associated Press

Published: Tuesday, Feb. 15 2011 6:20 a.m. MST

Passengers wait in a packed carriage to depart from Lisbon's Cais do Sodre train station Tuesday, Feb. 15, 2011. Portuguese train engineers went on strike Tuesday, stoking pressure on the government as it cuts pay and hikes taxes to tackle a debt crisis that is threatening to engulf the country. Thousands of commuters were left stranded during morning rush hour as the national rail company said over 90 percent of trains didn't run.

Francisco Seco, Associated Press

LISBON, Portugal — Portuguese train engineers went on strike Tuesday, stoking pressure on the government as it cuts pay and hikes taxes to tackle a debt crisis that is threatening to engulf the country.

Thousands of commuters were left stranded during morning rush hour as the national rail company said over 90 percent of trains didn't run.

Portugal ran up high debts during the past decade amid frail growth, and the government is scrambling to avoid asking for a bailout like the ones needed by fellow eurozone countries Greece and Ireland last year.

But the interest rate on Portuguese 10-year bonds rose to 7.46 percent Tuesday — not far shy of the level that forced Dublin to ask for help.

The battle to solve Portugal's financial crisis is taking a political and financial toll, and the country's failure to escape a bailout would add new momentum to Europe's economic troubles.

European finance ministers meeting in Brussels on Monday announced no new decisions on boosting the size and powers of the bloc's fund to rescue its heavily-indebted members. The delay is worrying markets, and investors are asking for higher returns on what are perceived as risky loans to Portugal — compounding the country's already huge financial problems.

Finance Minister Fernando Teixeira dos Santos said in Brussels he wanted the European fund to be able to buy bonds on the open market, thereby helping to stabilize their prices, but finding a compromise among the 17 nations that use the euro was proving hard.

"This process is taking longer than it ought to, in my opinion, and I think the delays and hesitation in taking the steps we need are affecting the eurozone and the stabilization of the euro and, consequently, all the countries which belong to the eurozone," Teixeira dos Santos told Portuguese media.

Portugal plans to raise up to €1 billion ($1.3 billion) in a sale of 12-month Treasury bills Wednesday. So far it has had no problems getting funds on international markets, but the rates are punishingly high.

The center-left Socialist government says it reduced the budget deficit to 7.3 percent last year from 9.6 percent — the fourth-highest in the eurozone — in 2009. Its austerity plan aims to cut the deficit to 4.6 percent this year.

However, analysts expect the money-saving measures to send Portugal into recession. That would hurt tax revenue and place further stress on the budget, which is already being drained by high interest rates on its borrowings and increased welfare payments resulting from an unemployment rate close to 11 percent.

There was some good news for the minority government, though, when a small party said it would abstain from a no-confidence vote, ensuring the attempt to force an early election will fail.

The Left Bloc, a small, radical party which competes for support with the Communist Party, intends to present the motion in Parliament on March 10. The Popular Party announced late Monday it would abstain in the vote.

The government is also resisting a popular outcry against the austerity package, which includes a 5 percent pay cut for staff at state-owned companies this year. Those companies have total debts of more than €21 billion ($28.2 billion) with public transport companies, including the national rail company.

The government is demanding that state companies save 15 percent on operating costs this year.

Tuesday's rail strike was the latest in a wave of walkouts.

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