>> this is "bbc newsnight." funding for this presentation is made possible by the freeman foundation in new york, stowe, vermont, and honolulu, newman's own foundation, the john d. and catherine t. macarthur foundation, and union bank.

>> union bank has put its global financial strength to work for a wide range of companies, from small businesses to major corporations. what can we do for you? >> portugal -- will billions have to be spent on a new european bailout? this week, portugals economy shrank in the last quarter of 2010 for the first time in the year as austerity measures designed to avert a bailout hit consumer spending. this makes the country more likely to turn to the eu and imf for help. >> other measures had to be taken, including revaluation of the currency, and that option is gone. >> british author goes to gaza to see for himself how children experience an adult war. >> out here on the waste land, icy screaming and shouting. moments later, a donkey cart

comes rushing by. a young child lying bleeding inside. >> a debate with a friend from israel. after greece and ireland were forced to seek an eu bailout, many thought it would be portugal next. though the country's cost of borrowing has risen above 7%, so far, it has managed to avoid the fate of those other countries on the periphery of europe, but for how long? with 10 billion euros worth of borrowing ahead in the next four months, its minority socialist government, markets are once again nervous about portugal's health. our economics editor reports. >> when they write the history of the crisis at the edge of europe, it will be littered with scenes like this.

there should be brand new homes for sale. the journey suddenly at a halt. welcome to portugal. this, by now, is a typical peripheral europe seen, a plot of land that should by now be homes and flats, property development gone wrong. not much happening. and repossessed. but portugal faces more than just a property boom and bust. it faces a challenge to the whole way the country has been running for the last 20 years. here, they know it is just a matter of time until the euro sovereign debt storm comes. as with greece and ireland, the country is in recession, deep in debt, and the market's demand austerity, but even that is not its biggest problem. its biggest problem can be seen most clearly in a place like

this. not long ago, there were 70 workers here. now, there are just 18. they are still doing the handmade stuff, but the mass production has gone to china. the manager of this family-run business making a difference, blinds, and shutters, against the market forces of the whole world. >> the construction sector that was mainly for apartments -- a lot of companies shows sales. they went for bankruptcy, so what carried on was the construction based on the public sector. central governments and local governments, and that, too, has been dying because the government just does not have any money. >> portugal needs to grow its way out of debt, but right now, it simply cannot. it cannot export enough. wages are falling, and when it

comes to borrowing money from the banks, businesses are still in the middle of their own personal credit crunch. for nearly 50 years, portugal was a dictatorship. then, it joined the eu, and the public sector mushroomed. there are big new bridges, motorways, not always that busy. lisbon is a sprawl of social housing products, but now, the age of free money doled out by brussels is over. all across portugal, bolger's are forming. unemployment just below 11%, and portugal is already four. minimum-wage the lowest in europe, and the port here in less than half what they would earn in ireland. >> our rates are way too low.

before entering into the single currencies, there were other measures that could be taken, including devaluation of the currency, and that option is gone. the options which remain is lowering your company taxes, but that, too, cannot be -- for fiscal reasons, you cannot be more competitive by lowering them. there are very few options left. >> low growth, high debt -- i have seen this story before in greece and ireland, with one exception. so far, the bond markets have failed to stage an attack on portugal. but in lisbon, they know the crisis may be coming. they have had their debt downgraded, and they need to borrow 10 billion euros before july. at the start of the year, portugals cost of borrowing fell back a bit as investors started to believe that the european union would get its act together and come up with a permanent solution to the crisis, but there are some days when they wake up and say portugal's

parliament in turmoil, and they think the basics of the economy are not right, and the cost of borrowing shoots right back up again. last week, trends for unions staged rolling strikes. i went to lisbon's main commuter stations to see the gigatons any may him, but there were none. only the union's leader and its translator. >> will you win? >> if we do not fight, we will not win for sure. >> there are no riots on the street yet, but workers are facing 10% wage cuts in the public sector, benefit cuts, and vat has gone up to 23%. the big battles lie ahead. the next battle is with the parliament a controls 26% of the seats, and have obtained a no- confidence vote that could bring down the minority socialist government. >> the effect of the government is to create a recession, so

more unemployment, and lower wages. what we need is in the short term, to sustain the demand and to promote exports. in the long term, to change the pattern of portugal's economy, to modernize it. >> the economic minister is the man has to implement the austerity. >> the growth of exports from 2005 -- >> he seems weary of the same old question. >> what would be so wrong with accepting a veil of, drawing a line under the european crisis, going inside the fortress, and finally defeating the financial markets? >> do you believe that there is anyone who believes that we would be at the helm of the eurois own crisis? -- eurozone prices?

we are in the middle of a bridge. the side will come from is the side of our economy based on low wages, low technology, and the other side of the bridge is a different economy with a high level of knowledge, a higher level of education, and with more bally in the product. this part is right in the middle of that bridge. the question is whether we can go back, because the other side is not there. >> portugal has become the jagged edge of the eurozone, the front line on the edge of the currency, and a test of just how much a welfare state can stand.

sometimes in the market will probably stage a test of your resolution. >> i do not think portugal is going to escape a bailout. we have seen spikes the last couple of months where interest had shot up, and then it went down again. there is also a lot of pressure from other countries, including spain, for portugal's center or later to say whether they want or not to go to the imf. >> because for spain, portugal is the shield against another crisis. >> absolutely. if it hits portugal, they would rather it hit sooner than later. >> one way or the other, portugal faces austerity. even the markets impose it, or the eu and imf impose it, and in the process, the social model will come under strain, but the issues raised are even bigger because the price of stability is that for referral europe effectively will lose all semblance of control --

peripheral europe. now, what is a child entitled to expect in a world controlled by adults? there's the united nations convention, but as the news tells us every day, it means nothing in many places. a british children's author whose books sell all over the world, decided to visit israel and gaza, the setting for his book, "the kites are flying." here is his personal account. and that a couple of years ago, i wrote a story about max, who makes a film about the wall that divides palestinians and israelis, about a young boy on the palestinian side and a girl on the israeli side.

they become friends who fly their kites. to them, the wall is a barrier. max c. is anger and despair all- around, but in the children, the beginnings of hope. i was brought here to israel first and then to gauze that as an ambassador for save the children to see the work they do and find out on the ground whether or not the children on both sides see a chance for peace or whether my book was sentimental nonsense. who is the black man who came along and change things as well? >> obama. >> before obama. the martin luther king. >> i have come to a cooperative village school, bilingual, by national, but first, israel. arab and jewish children play and learn together. i'm like max in my own story.

i want to know what both communities think and feel about one another. >> so you come to this school, and there are arabic children here. did you find it quite easy to begin to play with them? just as easy? >> yes, it was easy, but it takes some time. when kids say to another kid, "are you arab?" it was like a curse. i tell them that it is not a curse. >> you hear the bad stories. >> bad stories and not good stories. >> max witnesses the moment when the kites fly up over the wall. kites of peace. a new beginning maybe. a fresh start. so here we are, making cuts together -- making kites

together. blue and pink? perfect. oliver sure of is the more scenes there are like this, the more children meet and talk when they are young, the greater the chance of understanding and reconciliation. sadly, when they are 12, the children are sent off to separate schools. there can be no kiteflying together after that. on the israeli side of the gaza border is this town where gauze and rockets fly, not kites. the children who live here live under constant threat of attack. in response, in december 2008, israel launched into operation.

20 israelis and 1300 palestinians died. but the rocket attacks continued. at the border, the israeli guards do not allow my save the children companion to cross. no reason given. gauzes coast is patrolled by the israeli navy, and by land, it is surrounded by a great wall. because of, run by hamas, exist in a state of war with israel -- gaza. israel and forces district blockade. to me, it looks like a siege. the economy of gaza has collapsed. levels of poverty, malnutrition, and unemployment are falling. i visit the hospital supported

by save the children. the israelis say they allow essential supplies through, but still, this is a center for malnutrition. i'm able to talk freely with the mothers and doctors. >> we are fighting anemia, rickets, malnutrition. >> at the school in gaza city, it is only too clear that the children remember vividly what happened when the israelis attacked. they saw relatives died. they cowered in their houses. they hate what the israeli soldiers have done. this will be the real test. what do the children of god as a feel about peace -- what did the children of gaza feel about peace? what do you feel about israeli children? >> it is the israelis during the blockade. they want rights for the children, but they do not want palestinian children to have

rights. >> if you had israeli children here and palestinian children here, do you think you could talk to them? and then maybe one day, one of them will grow up and become a government minister and lift the blockade. maybe one of them will feel sorry for us. >> is there any other way of achieving freedom, other than fighting for it? then there are people who pressure us. they want to take what we have by force, so we must try as hard as we can to get back our land by blood. >> no room for wishful thinking or sentimentality here. >> my auntie, uncle, and cousin were murdered. they lay there for five hours in the street. michael was not dead. he lay bleeding, he was shouting for help. my other auto is a doctor. he went down to help and was hit

by a robber -- hit by a rocket. >> it is difficult to know how to respond because i cannot imagine what he has seen. there is deep resentment and anger. but i sensed the willingness not to condemn israeli children. maybe it is a beginning. they want peace, but they do want freedom more, and they will fight for it. these cuts will not be flying over the wall for a while maybe, but one day, perhaps -- these cuts will not be flying over the while -- these kites will not be flying over the wall for a while. leaving, i feel like a deserter, turning my back on despair. the only work for palestinian kids is to collect the rubble. they will sell it to be recycled into concrete blocks. while i'm waiting to leave, i

hear shots. out there on the waste land, i hear screaming and shouting. moments later, a donkey cart comes rushing by, a young kid lying bleeding in the back of it. i have never seen anyone shot before. a doctor tells me the israelis use remote control guns, operated from miles away. it is difficult for me to confirm this has happened here, but the doctor says it happens a lot. sometimes, children are maimed for life. the united nations says guns fire on people who work restricted areas, and a commander has to give an order first. within minutes, the children are out there again back to their scavenging. so what have i learned?

that there is certainly a little apparent room or reason for compromise. the wounds are too raw, still bleeding. but i do feel that the seeds of forgiveness and understanding are there in the children of both sides, that one day, these children or their children will make a peace. just as they did in europe after a second world war. they did it in south africa. they did it in ireland. >> we did ask the israeli army why it uses remote control guns on the gaza border. it told us there has been an increasing number of attacks in the area, including one last may with children using a cart loaded with explosives. my colleague spoke to the man who made the film, and the gentleman who is the vice chair

of the all party britain. >> apart from this solution which seems to evade everyone at present, what do you think would most improve the lives of these children? >> i think it is meeting other children, to be honest with you. the whole i found in israel was that when they have the opportunity to talk, things will happen -- the hope i found in israel. seems to me almost the most important thing that could cross over through that panel and out through the israeli wall are palestinian children, gaza children, to talk to israeli children. what you have got to have in the end is a meeting of minds. i know it sounds we are at the bottom of a terrible place in israel and palestine, but hope has to start somewhere, and it will have to start with the children. is starting with the children. >> terribly depressing situation. >> it is depressing. the children are the victims of

a war, but i do not think it is possible to understand what is happening here. without understanding, too, that the problem is, as, who use these children as human shields, who give the children explosives or sometimes force them to have an explosive belts and send them to blow up israeli civilians. they have a terrible responsibility for this dreadful situation, and that really has to be faced up to. >> as far as the siege that the israelis are imposing on this community. >> the siege is about trying to prevent westerners going from gaza to blow israeli children up. all of this is a dreadful situation. situations like this on the west bank where the palestinian authority are in charge. while we stress the human tragedy, it cannot be separated

from the situation -- >> that is the worry about your peace. you were had, really. you did not go to a place where most of the rockets fall from gauze that and see the terrified children there. >> no, but i talk to the israeli children who know all about that and two israelis who know it all too well. the truth is that you cannot wage war on children. in their last incursion, 347 children died. every time that happens within a family, you are not solving the situation. all you are doing is creating hatred for the next generation. >> they are not going in there to kill children. >> but it happens. that is the problem. it is not that they are targeted. it is collateral damage, but that does not make it any better. what it does is create this cycle of hatred. you have to stop the cycle of resentment, the cycle of hatred and begin to create trust, and that will not happen by targeting children. there were 26 children shot like

that in 2010. 26 of them. >> there is a dreadful cycle there, but the responsibility for that is with thomas -- with hamas. they arm the children, teach them hate, use them as human shields. as we concentrate on the tragedy of the children that is truly dreadful, there are tragedies of the children of israel, who have effect -- have been affected by suicide bombers. it is a tragedy for everyone, and -- >> it just seems shows shortsighted to say that it is all hamas' faults or all the israelis fall, and not to do something constructive. redone misunderstandings here recognize there are human beings involved. >> it is about human beings. if they could meet, perhaps they could get some understanding, but they cannot get it -- >> they cannot meet when you put

up a barrier. >> how can they meet, and how can we be without a barrier when they are sending children with explosive belts across to kill israeli children and israeli civilians. all of that has to stop. >> we did not get a whisper of children with explosive belts on in your piece. >> i did not meet any children with explosive belts. >> but that indeed happens, and that is why people have been blown up. it would have been nice to be able to see the very important piece. the children who are ill being given medical treatment, and that is a good side of human nature. m very malnourished children as a consequence. >> as a consequence of what hamas has done, refusing to

negotiate. it really makes it acceptable to see human suffering there, but the way out is if the human beings me, but after you heard those children speak, their concept of a political situation, too -- >> have you got some great insight that the rest of us are missing? >> the inside i have is simply the children's in sight. israeli and arab children going to school together. the answer is simply this -- yes, they have different religions, different cultures. they are sharing the same land. it can be done. that is proved in a village, in a situation like that. if it works there, it can work everywhere. it is a question of one side of continuing to blame the other, simply acknowledging responsibility when you know perfectly well -- we all do. we are all friends of israel here, but it does them no good to target children.

does that make friends anywhere? does it change their minds? >> i agree. we will leave it there. >> that is all for this week. from all of us, goodbye. >> hello and welcome. see the news unfold. get the top stories from around the globe and click to play video reports. go to bbc.com/news to experience the in-depth, expert reporting of "bbc world news" online. >> funding for this presentation is made possible by the freeman foundation of new york, stowe, vermont, and honolulu. newman's own foundation. the john d. and catherine t. macarthur foundation. and union bank. >> union bank has put its

financial strength to work for a wide range of companies, from small businesses to major corporations. what can we do for you? >> "bbc newsnight" was presented by kcet, los angeles.