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Portugal’s cancelation of the high-speed train project will damage the future of both economies

Beset by drastic spending cuts, the Portuguese government has decided to definitively turn its back on its role in the Madrid-Lisbon high-speed train link, which was going to join the neighboring country to the European network. This is no surprise. Pedro Passos Coelho’s conservatives did not see high-speed rail as a priority for their country, and the project has been up in the air since they came to power in June 2011.

While the decision is understandable, given the dramatic state of its public accounts, Portugal is now without a major future project, one that also involved Spain, given that Spanish companies had already been contracted to do some of the work. The Portuguese government has, at least, indicated that it will be continuing with the European gauge project, which will still allow this link, albeit at a lower speed.

The economies of Portugal and Spain are intimately linked given their geography, their mutual investments and given that both countries belong to the euro and the EU. The problems of Portugal affect us, and vice versa. The Portuguese economy has been in the doldrums since 1999, and unlike Spain’s economy, it did not enjoy the bonanza of the euro years. When the sovereign debt crisis arrived, Portugal was obliged to go the EU and the IMF in May of last year for help paying its debts. In exchange for a loan of 78 billion euros — which still may not be enough — Portugal had to accept draconian measures to reduce the deficit, as well as tough reforms, all of which cost the socialists of José Sócrates the elections. For now, the condition of the patient has worsened: if in 2011 it saw a contraction in GDP of 1.6 percent, in 2012 it will see an even steeper fall. However, Passos Coelho has refused to allow any leeway on the cuts to bring down the public deficit, and maintains that Portugal will return to growth in 2013 thanks to private investment and exports, which are already on the rise.

Until now, the Portuguese have put up with the cure stoically, with less social agitation than in Greece. The general strike that was called Thursday against the cuts and labor reforms, which bring down the cost of sacking people, did not have the same support as the earlier one late last year. That action had the backing of the Socialist UGT, which, this time around, has decided to accept the government measures — albeit through gritted teeth.

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