«THE PORTUGUESE PATIENT»

IT MAY have been inevitable, but it was a sad moment for Portugal: Europe’s oldest nation state brought low. In a prime-time television address on April 6th, after months of denial, Portugal’s caretaker prime minister, José Sócrates (pictured), at last admitted what had long been obvious to everyone else: his country needed a rescue loan from the European Union.

Portugal now joins Greece and Ireland in the euro zone’s intensive-care ward. Its public debts are nowhere near as monumental as Greece’s; its banks not as reckless as Ireland’s. It has succumbed because of a humdrum failure to rein in wage increases and to modernise a bureaucracy schooled in tallying the quiet remains of the first global empire, as well as an inability to coax upstanding family companies, which for centuries have crafted textiles, ceramics and shoes, into competing with the Chinese. As a result, harsh as it may seem, a country whose collective memory is still scarred by the austerity demanded by the IMF in the early 1980s must once again subject itself to tough reforms demanded by foreigners. (...)

But whether Portugal’s capitulation marks a turning point in the euro zone’s crisis depends at least as much on decisions in Brussels as on those in the Iberian peninsula. Getting Portugal’s reform package right is the priority. The country surely has some financial skeletons: countries that borrow so heavily while growing so slowly usually do. But its main problem is a lack of competitiveness—which suggests a greater need for structural reform than for austerity. So top billing should go to deregulating cosseted industries and reforming the labour market. Portugal, one of the rich world’s most rigid economies, must become one of the more flexible. Greece’s experience shows how hard this will be.

European politicians’ responsibilities do not stop there. This newspaper has repeatedly argued that the debts of Greece, Ireland and Portugal are unpayable and must be restructured. With all three countries now being “rescued”, the politicians at Europe’s core should start work immediately on an orderly restructuring of their debt. That will require a boldness that Europe’s policymakers have lacked. But it is a prerequisite for drawing a line under the European debt mess. in THE ECONOMIST