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Merkel insists on austerity during Portugal visit despite protests and Nazi jibes

German Chancellor Angela Merkel took her fiscal discipline message to bailed-out Portugal on Monday, tolerating Nazi jibes from a small group of protesters as she advocated the benefits of austerity and economic reforms.

As in her recent trips to bailed-out Greece and debt-stricken Spain, demonstrators unhappy about tax hikes and pay cuts devised to improve public finances turned their anger on the German leader. Portugal needed a €78 billion ($99 billion) rescue last year when it was engulfed by the eurozone's debt crisis, and living standards have dropped sharply.

A protest march in Lisbon featured dummies with Merkel's face and with T-shirts saying "Adolf Merkel" and including a swastika. Banners said "Merkel Nazi, Go Away!" and, in German, "Merkel Raus" (Merkel Out).

"I think it's wrong what they are doing," said Luis Miguel, an actor who was carrying puppets representing Merkel and Portuguese Prime Minister Pedro Passos Coelho. "It's not right what they are taking from the people."

Merkel told a news conference with Passos Coelho she was "not particularly bothered" by the Nazi references, saying people had a right to express their views.

Germany is the eurozone's biggest and strongest economy and contributes more than the other 16 members to bailouts for financially troubled members. In return, it has demanded that rescued eurozone members adopt spending cuts and enact reforms that take away long-standing workers' entitlements in order to improve competitiveness. That has made Merkel a lightning rod for public discontent.

Reactions to Merkel's visit illustrated the split in Europe over how to handle the continent's debt crisis. Merkel and the Portugal's center-right government insist austerity policies must continue. Portugal's main opposition Socialist Party, like French president Francois Hollande, wants a softer emphasis on cuts and greater focus on measures to improve growth. That demand has won broad public support in Portugal.

Authorities laid on heavy security for the visit, but the marches drew only a few hundred people, unlike in Athens and Madrid, where demonstrations have drawn tens of thousands and sometimes become violent. Some hooded protesters pushed over a barricade keeping them away from a venue where Merkel was due to appear, and riot police with shields and dogs were deployed to push demonstrators back.

Merkel praised Portugal's coalition government for complying with the terms of its bailout agreement. Germany and other bailout lenders — the other eurozone countries, the International Monetary Fund and the European Central Bank — are keen for Portugal to stay the course, sparing the continent more difficulties like those in Greece.

The Portuguese government predicts a third straight year of recession in 2013, and the jobless rate has risen to almost 16 percent.

"I think Portugal's conditions for growth have improved greatly recently because of this adjustment program and the courageous action of the government," Merkel told reporters.

"We have to keep our word" on promises to cut debt levels, she said, adding that austerity must go hand-in-hand with reforms to make eurozone countries more internationally competitive.

"It will be a tough path," she said.

The visit came at a tense moment for the government, which is steering another austerity budget through Parliament. The 2013 state budget includes what Finance Minister Vitor Gaspar has called "enormous" income tax hikes that many observers say will choke growth and make it harder for the country to pay off debt. The government has an overall parliamentary majority, allowing it to force through the measures in a vote scheduled for the end of the month.

Merkel's visit coincided with the start of the sixth regular assessment by international inspectors of Portugal's progress in implementing the bailout agreement. The assessment is expected to last about two weeks.