The fear is that such steps could cause a downward spiral in which the economy contracts, public debt rises as a percentage of GDP, tax revenue shrinks, markets get even more alarmed, additional austerity measures are required and so on.
A likely slowdown in domestic demand is bad news for Lisbon car dealer Rui Pereira.
The automotive sector posted a comeback this year, with sales of light vehicles up by a third in March compared with the same month last year. But Pereira fears that those gains are being put at risk by the austerity package.
"The right thing is to stimulate consumption, and we're not doing this, which will cause problems," Pereira said.
Like 97% of companies in Portugal, Pereira's firm has fewer than 50 employees. Although some small and medium-sized enterprises are nimbler and more flexible than big companies, many lack cushions for bad falls in the economy and could be hard hit by a double-dip recession.
Here in Estremoz in the scenic Alentejo region, sometimes called the Bordeaux of Portugal, Ramos, the winemaker, sees dark clouds on the horizon, and not just from the thundershowers that drench his thirsty green vineyards.
Ramos said he expected several small winemakers to go out of business if the economy tightened yet again. His family-run company, which produced 4.8 million bottles of wine and had revenue of about $18 million last year, sought to make up for idling domestic demand by cultivating foreign clients. He also saw buying habits shift in domestic sales as pocketbooks shrank.
Sales of his "entry-level wine," Loios, are now gaining on his higher-quality, signature label, Marques de Borba.
"The premium wines are more difficult to sell," Ramos said. "These are the natural signs of recession."
Despite an expected rise in July of 1 percentage point in value-added tax on wine, part of the government's austerity plan, Ramos plans to keep his prices steady and absorb the loss.
He still predicts that his business will grow this year, with a trio of new medium-priced and premium wines coming on line, but he echoes a widely heard criticism in Portugal: the government waited too long to get its books in order, which worsened the crisis.
Campos e Cunha, the former finance minister, says that if belt-tightening measures had been introduced six months ago, before investor worries skyrocketed, the package probably would have been much less harsh.
The question now is not just whether Portugal's austerity plan can soothe the markets but how negative its effect will be on the country's economic growth.
"Europe was too laid back last year. Maybe now they are too stringent," said Assuncao of Catholic University. "Given the current constraints, are the macroeconomic policies now being implemented in the Eurozone the best? It's really unclear."
Special correspondent Simone Cunha contributed to this report.