Portugal: the danger is not over
LISBON The threat of a bail-out had been hanging over Portugal for months. It perhaps explains why the initial reaction to the request for help was so muted. But talking to people in the warm sunshine you discover a different story. It is easy to find resignation, easy to find those who have bought the line that "there is no alternative".
There are, however, layers of anxiety - the young woman worried because her job is dependent on public funding, another who wants to start a family but sees a bleak future. There's the politician who says this is one of the worst moments in Portugal's history and an older woman, on a tram, who told us it was a humiliation. And then the by now familiar European story - a younger generation desperate for work and planning their getaways.
The prime minister had said he would not resort to the begging bowl. The Portuguese banks, when they ceased buying up the country's debt, ensured defeat. What is left now is to negotiate the terms of surrender.
What we learnt today is that the bail-out will be around £70bn ($114bn; 79bn euros). It will come with strict conditions - deeper cuts to the budget, privatisations and reforms to the labour market. We should get the details by mid-May.
Until early June, Portugal is in limbo, without a government. The election will turn on the question of who brought Portugal to the verge of bankruptcy?
Almost certainly only a newly elected government can finally sign off on the terms of the bail-out. Because of the political uncertainty, the EU has insisted that all the major parties agree to the terms of the bail-out.
Soon the men and women in suits - technical mandarins who will pore over the accounts - will descend on Lisbon. Only then will some of the key details emerge - what will the interest rate be? What will be the repayment period? And, perhaps most crucially of all, what further spending cuts and tax increases will be demanded? How extensive will be the structural changes required in order - hopefully - to re-engineer a chronically uncompetitive economy?
Public sector workers have grown increasingly restless, increasingly opposed to the raft of spending cuts and tax increases. VAT has gone up. There have been new taxes on some pensions. Wages have been trimmed. Money for local councils and health and education has been pruned.
More is surely to follow. The federation of public sector unions has already called a strike for early May.
There is, so far, little of the Greek anger here. Even so, a significant part of the population will challenge austerity on the streets.
Across Europe, the mood is turning against austerity. The central question remains unanswered - is the medicine working? In Greece, tax revenues are actually falling. Ireland has been forced to pump another 24bn euros into its banks. The European Central Bank has ruled out burning investors so Irish taxpayers shoulder the burden and lean years stretch ahead.
Portugal is in the midst of a double-dip recession. And therein lies the conundrum. How will these economies grow to the moment they can escape their debt trap?
That is why many economists believe that, sooner or later, debt restructuring will follow. Across the EU, opposition parties are likely to say the years of austerity are a very high price to pay to defend the euro. For it is the European institutions who insist that investors should not take a hit because they fear the ripples that would flow through the banking system.
Spain's Finance Minister Elena Salgado, who has negotiated her country's path with some skill, declared yesterday that Spain would be the last euro-zone country to need a bail-out. You wouldn't want to put your money on it. Growth in Spain is barely spluttering and unemployment is actually increasing. There are doubts too over Italy's finances.
Meanwhile, the European Central Bank has edged up interest rates. As it was in the beginning so it continues. At the birth of the euro-zone the rate was right for some countries but not others. The chief economist at MKM partners said: "The ultimate effect is that [the interest rate rise] will restrain inflation in Germany and France but will cause deflation in the periphery which will cause austerity programmes to fail."
That is the doubt that informs the main political debate.
Could the treatment the EU has chosen to defend the euro - namely austerity in exchange for loans - fail? And, if it does, what then? There is increasing tension - as I have written in other posts - between the bankrollers (voters in Germany, Finland and Holland) and the bailed-out (voters in Greece, Ireland and Portugal) who increasingly resent the EU and their loss of independence.
In Britain, too, the public seems overwhelmingly against offering loan guarantees to Portugal. The UK potentially will have to contribute about £4bn but the chancellor says many hurdles would have to be jumped before he would be signing any cheques.
The government insists its hands were tied by commitments made by the former chancellor in the dying days of the Labour government. Alistair Darling says he consulted incoming ministers. The chancellor also made it clear today that he would not challenge the use of the EU's emergency fund to bail-out Portugal. He sent a clear signal to some of his back-benchers that he was not about to open up a major row with Europe.
So far this bail-out has been calmer than the others but the road ahead is littered with risks and dangers.