Portugal is poorer than Brazil

Portugal: With the left out of the crisis

Even seven years after the start of the euro crisis, almost all southern European countries are still waiting for the light at the end of the tunnel. Significant parts of the population live in poverty or precarious conditions. Even in Spain, which Brussels likes to praise for its renewed economic growth, unemployment remains at a high level.

The astonishing exception is a country that has long been considered the poorest in Western Europe: Portugal. In 2011, Lisbon had to apply for emergency loans and was then under the control of the creditor troika for four years, which also imposed an austerity program on Athens and Dublin. For two years, however, things have been on the up: the economy is growing steadily and unemployment, which rose sharply during the crisis, is falling significantly.

This is remarkable in several respects: Portugal achieved this upturn on the one hand because it did not follow the recommendations of the EU Commission. Instead of continuing to save, Lisbon gradually broke with the austerity policy - but avoided a confrontation with Brussels. On the other hand, right-wing populism has not yet been able to gain a foothold in Portugal. Both developments are closely linked to the Portuguese left, particularly the government of Prime Minister António Costa. Since November 26, 2015, he has headed a socialist minority cabinet that relies on the tolerance of two left-wing parties in parliament.

As positive as Costa's mid-term balance sheet is, his political future appeared uncertain two years ago. Opposition conservatives and sections of the media initially called his government a "niedonça": a strange construct that will not last long. In fact, the socialists took over a country that had undergone shock therapy.

Saved in the recession

Portugal had suffered from stagnant growth and low productivity even before the global economic crisis. During the crisis, Lisbon had to support the country's ailing financial sector with billions, and the national debt shot through the roof. When the German government under Angela Merkel delayed the European response to Greece's financial needs at the beginning of 2010, other euro countries came into the focus of nervous financial market players - including Portugal. The rating agencies downgraded the country several times between 2010 and 2011, until the socialist Prime Minister José Sócrates finally had to apply for European aid loans. In return, Sócrates also committed to the austerity policy. And after early elections, the victorious conservatives tightened this course.

Their Prime Minister Pedro Passos Coelho declared: "We will only overcome the crisis if we get poorer." [1] In this spirit, he went much further than even the Troika had asked for. His government privatized energy and transport companies. It cut massively in health and education, among other things by means of numerous layoffs in the public service. As in the private sector, it was the temporary workers who were hit first: 41 percent of Portuguese had already worked under precarious conditions before the euro crisis and were now accordingly defenseless. [2] Unemployment quickly reached unprecedented levels, among young people it has now risen to 42 percent. This not only increased the pressure on wages, but also increased poverty in the country, not least because at the same time the duration of unemployment benefits was cut in half to 18 months. More and more people were looking for food from food banks, and aid organizations spoke of the social emergency.

All of these hardships, however, failed to achieve their self-stated goal: they neither generated growth nor reduced the country's liabilities. Rather, domestic consumption collapsed and at the same time public demand fell - Portugal's economy plunged into recession. [3] The state suffered tax shortfalls and its debt continued to rise.

In the parliamentary elections in October 2015, the conservatives were severely punished for this disastrous course, but remained the strongest force. However, the top candidate of the second-placed socialists, António Costa, surprisingly decided against tolerating a conservative minority government. Instead, he negotiated separately with the communists and the actual election winner, the left bloc, which had achieved the best result in its history. Both parties agreed to the toleration of a socialist minority government - on condition that it breaks with austerity. [4]

Brussels and Berlin reacted with alarm, some even expected a similar escalation as after Syriza took office in Greece three quarters of a year earlier. The EU Commission put pressure on Lisbon and even threatened an excessive deficit procedure at the beginning of 2016. But then came the Brexit shock and the Commission feared that tough action would only fuel Euroscepticism. After Donald Trump's election victory and especially in the European super election year 2017, Portugal finally flew under the Brussels radar.

Stable upswing

So Costa gained a respite. He was given an opportunity that Alexis Tsipras never got in Greece. Its Syriza government had sought the confrontation and found no allies for it. In the end, an example was made of her before she could even show whether her economic approach would have borne fruit. A little later, the more diplomatic António Costa provided evidence that a different economic policy can very well work.

Right from the start, his government focused on stimulating the economy through increasing domestic demand. To this end, it gradually began to revise the cuts made by its predecessors, for example in the case of pensions and family allowances. She also raised the minimum wage in two steps, from 505 to 557 euros per month. In addition, the privatization of public infrastructure was stopped. In addition, the public service is to return to the 35-hour week. Costa does not want to have any undercutting competition in terms of employment conditions: “The idea that productivity increases with more hours is a false incentive. Instead, we need to increase the value of our goods and services. "[5]

The result proves him right: while unemployment was above 12 percent when he took office, in 2017 it fell below the 10 percent mark for the first time in eight years. A decrease to 7 percent is expected by 2019. [6] The economy grew by 2.5 percent, which is stronger than the euro zone average (1.9 percent). In addition to increasing exports, Portugal is benefiting significantly from a record influx of tourists who prefer the safe travel destination over North Africa or Turkey. What is decisive, however, is that the government has strengthened purchasing power and also relieved the important service sector, for example through a reduced VAT rate for hotels and restaurants. That and the slowly returning optimism make the country more attractive - increasingly also for foreign investors.

The upswing is now so stable that the employers' association and the government are jointly campaigning for the return of young, well-educated emigrants. In the crisis years around 500,000 people left Portugal for other European countries or Portuguese-speaking countries such as Angola and Brazil. Up to 100,000 are now to be recovered. [7]

In all of this, the government has achieved another goal: the budget deficit meets the requirements of the euro area. Even more: In 2016, new debt was 2.1 percent of gross domestic product, the lowest in 42 years, and this year it is expected to drop to 1.5 percent. The country has come much closer to sustainable economic development and is dispelling fears about a second European loan package. The government also refutes all those critics of the euro - also in their own country - who consider a social policy within the monetary union to be unthinkable.

Left pragmatism

This success story was essentially made possible by the pragmatic action of the parties involved. The socialists, the left bloc and the CP are miles apart on some important issues, including the relationship with the EU and NATO. Nevertheless, they cooperate in day-to-day business with a high degree of commitment. Since they do not form a joint government, they do not have to deny their differences. You are showing once again that minority cabinets - which are not uncommon in Portugal - can function well.

The socialists, on the other hand, cultivate this pragmatism not only internally, but also in relation to the EU: "We have learned from the Greek experience," explains Costas State Secretary Pedro Santos: "You tried a confrontational strategy and it did not work." In Santos had called on the opposition to threaten state bankruptcy in negotiations with the Troika: "We should make the knees of German bankers tremble." [8] In general, there is little in common with the tradition and style of the Greek counterparts. Like Tsipras, Costa is more of the political outsider type. The son of a communist poet from the former Portuguese colony of Goa in today's India owes this nimbus above all to the fact that he is the first non-white prime minister in Europe. Because the experienced politician belongs to the establishment and is not a classic leftist either.

Two weak points

If the cooperation with the left-wing parties nevertheless works silently, it is because both smaller partners are more or less firmly established. For example, the protests against austerity in Portugal did not result in any noteworthy new party. Rather, the urban radical youth, green libertarians and indignant precarious people are drawn to the left bloc founded in 1999, a collection movement comparable to Syriza. The party scores with ecological and feminist approaches as well as a young, often female top staff around the chairwoman Catarina Martins and the former presidential candidate Marisa Matias.

In addition, Portugal has so far been spared right-wing populists. The memories of the right-wing Salazar dictatorship, which was largely bloodlessly overthrown with the Carnation Revolution in 1974, prevent open nationalism. But the role of the communists is even more important: they traditionally succeed in retaining many low-wage earners, but also authoritarian and nationally oriented voters. The CP thus counteracts the racist reinterpretation of the social question. It achieves this by being firmly anchored in the trade unions and local government in the south of the country. At the same time, the Communist Party, unaffected by any Eurocommunist openings, continues to have a real socialist orientation. It promotes a "patriotic and left-wing policy", a return to the Escudo and a withdrawal from NATO.

This unusual alliance also holds because all three parties benefit from the cooperation: the KP and the left bloc take credit for the fact that the more cautious socialists only introduced some social improvements under pressure and remain stable in the polls. Costa and his party, in turn, enjoy an unprecedented reputation among the population. This is also due to the rigid adherence of the conservatives to the neo-liberal course, which drives many of their voters into the arms of the socialists: At the moment, they could expect more than 40 percent in parliamentary elections and a double-digit lead over the moderate right; its chairman, Passos Coelho, resignedly threw in the towel after the lost local elections on October 1st.

However, Costa cannot sit back and relax. His country has two economic weaknesses: On the one hand, Portugal's banks have € 32 billion in bad loans, according to ECB estimates, which corresponds to a fifth of the total loan amount and is the third highest value in the EU. On the other hand, the national debt is still very high at 130 percent of the gross domestic product. In the EU, only Greece and Italy have a higher debt ratio. This makes Portugal vulnerable to pressure from rating agencies and financial markets.

Lisbon, like Athens, therefore hopes to be able to reduce its liabilities in agreement with Brussels - but must expect resistance. Seven years after the start of the euro crisis, Portugal is also showing that economic stability and, even more so, permanent overcoming of the crisis cannot be achieved in one country alone. You need solidarity among European neighbors.

[1]Quoted from Oxfam, The true cost of austerity and inequality. Portugal Case Study, 2013.

[2]Paulo Pedroso, Portugal and the Global Crisis, Friedrich Ebert Foundation, 2014, p. 12.

[3]Phillipp Engler and Mathias Klein, Austerity measures amplified crisis in Spain, Portugal, and Italy, DIW Economic Bulletin, February 22, 2017, pp. 89-93.

[4]Steffen Vogel, Spain and Portugal: Der left Aufbruch, in: “Blätter”, 2/2016, pp. 17-20.

[5]Quoted from: Peter Wise, Portugal PM will roll back austerity and maintain fiscal discipline, in: "Financial Times", January 24, 2016.

[7]Jan Marot, Because of the Euro Apocalypse, in: “WoZ”, 21.9.2017.

[8]Quoted from: Daniel Finn, Luso-Anomalies, in: "New Left Review", July / August 2017, pp. 5-32, here: p. 30.