and Daniel Alvarenga Reuters Stuffed into a time capsule, this ancient university town's local newspaper in Coimbra would give future historians a good idea of the pain that Europe's first financial crisis of the century inflicted on Portugal. The Diario de Coimbra reported on its front page last Thursday how bankers had called in a loan on a local sports stadium. A piece on the back page asked whether a rise in suicide rates was linked to the deepening economic downturn. A bank advertised the auction of 38 foreclosed properties. Other ads promoted some of the many gold and silver dealerships that have sprung up since the onset of the crisis for people forced to sell the family jewels. Burdened with public debt that will approach 120 percent of national output this year, Portugal is suffering so badly that many in the market wonder whether, along with Greece, it can escape its debt trap without abandoning Europe's single currency. The economy is contracting sharply due to tax increases and spending cuts demanded last May by the International Monetary Fund, the European Union and the European Central Bank in return for an emergency 78 billion euro loan. Output is projected to shrivel 3.3 percent this year, after a fall of 1.6 percent in 2011. With tax revenues withering, the government's core budget deficit nearly tripled in January and February. Unemployment jumped to 14 percent in the fourth quarter of 2011 as slumping domestic demand was compounded by a dearth of credit, forcing small and medium-sized enterprises to shed labour. “The financial sector just isn't injecting money into the economy,” said the president of Centro region's chamber of commerce, Jose Couto. Coimbra, two hours north of Lisbon by train, is Centro's largest city. “It's got to the point where even viable export companies are having problems managing their cash flow.” The manager of a small firm that produces medical equipment, Faria Joao, says he has had to trim his work force to 36 from 42 because the government is cutting health care spending. A second local company that supplies construction materials reports that 14 of its customers have gone bust since the start of the year. Manuel Afonso, 24, is looking for a job so he can afford to complete his journalism studies at Coimbra University, founded in 1290 and one of the oldest in the world. “I'm neither a worker nor a student because I have to be a worker to be a student,” he said. Afonso fears it could be years before he gets another job as good as the one he held at Portugal Telecom for six months before he was fired. Asked whether he was worried about the future, he replied: “If they go on like this there's no future to be worried about.” This is what the dry phrase “economic adjustment” means in practice. A lot is riding on how Portugal gets through the adjustment and learns again to live within its means. __
