LIGNET believes that it will be difficult, if not impossible, for Portugal to turn back the tide of long-term economic contraction with the additional burden of cutting spending. Its economy is therefore likely to underperform in 2012, which in turn will provide useful ammunition to critics of Germany’s plan to impose similar austerity throughout the entire EU. If this scenario unfolds as expected, Merkel’s government in Berlin will come under increased pressure to adopt a Keynesian approach and spend more money to prevent a long-term recession from setting in across the continent.
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