Portugal in crisis and away from the headlines Pedro Ribeiro Simões

The current European economic crisis revealed inadequacies in many countries. If the media coverage in Greece was stormy, for Portugal it was largely quiet and its disquieting economic reality remains largely unknown for the rest of the continent.

Portugal, whose formation dates back to the 12th century, has been characterized recently by forty years of authoritarianism and made its transition to democracy in April 1974. 

In the late 20th century, Portugal’s economy has grown and it became a founding member of several international institutions, such as the North Atlantic Treaty Organization (NATO), in 1949, the Organization for Economic Co-operation and Development (OECD), in 1949, the United Nations Organization, in 1955, as well as joining the Council of Europe in 1976, the European Union (at the time, European Economic Community – EEC), in 1986, including the Schengen area and the Eurozone.

Nonetheless, this strong international and regional integration was disturbed by the dynamics of the recent economic crisis that has settled throughout the world and hit Portugal particularly hard.

When the crisis hit

In 2009, Portugal had a budget deficit of 9,4% (down from 9,8% in 2005), and a public debt of 77,4% of GDP (down from 93%, in 2010). Meanwhile, Greece was registering a budget deficit of 13,6% and its public debt is 116% of its GDP.

In September 2012, short-term projections presented by the Troika (which combined the European Central Bank, the European Commission and the International Monetary Fund) predicted a decrease in deficit of around 3% in 2012, a further 1% in 2013, before growth would pick up again in 2014.

On the 7th April 2011, the Portuguese Prime-Minister publicly announced the country’s request for a bail-out which, a month later, was confirmed to amount to 78 billion Euros (originating in the IMF, the European Financial Stability Facility and the European Stability Mechanism). In exchange, Portugal would have to accept and implement a plan to significantly reduce its budget deficit: from 5,9% in 2011, to 4,5% in 2012 and 3% in 2013.

Life under austerity

But 2011 was also an electoral year, and the bulk of the austerity programme that came with the bail-out ended up being implemented by the newly elected coalition, headed by Pedro Passos Coelho, the new Prime-Minister: a cut in public spending, reduction of the wage bill and tax increase.

All of these produced strong repercussions in the daily life of the majority of Portuguese citizens. The cost of living rose sharply, with public transports becoming more expensive and deteriorating conditions of access to public healthcare. The purchasing power decreased by 6% in 2012, salaries have been frozen for the last four years, and the 13th and 14th month pay have been removed for those who receive a pension of over 1000 Euros.

The relaxation of labour law has allowed for an increase in the amount weekly working hours (from 36h to 40h/week) and has made it easier and cheaper for workers to be laid off and so, to reduce the overtime cost and the annual leave. Contributions for social security also increased, from 11% to 18% resulting, in practise, in a 7% decrease in salaries.

Thus, both the Portuguese government and the international Troika forecast to go further in the budgets cut, namely, a cut of 67 million Euros in Health. Indeed, the health costs for a general medical appointment, in a city, have doubled from 2,5 Euros to 5 Euros.

Is there a life after austerity?

In recent times, a slight improvement of the economic situation in Portugal can be observed. In the last quarter of 2013, GDP registered an increase of 0,6%, the unemployment rate has begun to decrease while the export sector is performing increasingly better. Diogo Teixeira, founder and CEO of Optimize Investment Partners, stated that “our companies are regaining competitiveness in the export sector”.

In April 2014, vice Prime-Minister Paulo Portas stated, in the context of that month’s Troika visit, that “it is not just another visit, it is the last. It is the review that will allow us to regain our political and financial autonomy.”

On the 22nd April 2014, the Troika come to Portugal in order to conclude the periodic assessment visits, which will culminate in Portugal’s return to markets. Following on Ireland’s footsteps, Portugal will soon become the second country in the Eurozone to terminate its financial assistance programme, after three years of sacrifices for the majority of the population.

Nevertheless, austerity policies will remain in place even after the Troika is gone, and the socio-economic situation is far from prosperous: as of March this year, the unemployment rate stands at 15,2%, with youth unemployment (under 25s) at 35,4%, and public debt represents 127,8% of the GDP, one of the highest in the Eurozone.

Diogo” voices the frustrations of his generation: Our generation is called “generation 500 Euros” [a round figure that represents Portuguese minimum wage, which is 485€] is paying the pensions for billionaires (…). The country lived beyond its limits as a result of European subsidies and subventions for “ghost” institutions. These youths are now calling for change.”

Most citizens see economic recovery as a distant and vague future. Any changes resulting from the structural reforms announced by the present government will only start taking effect in the long-term. International creditors remain indispensable now that the country prepares to return to the markets and to the close scrutiny and sudden mood swings of foreign investors. According to a news piece written by Marrie Charrel, for the Le Monde, quoting economics from Natixis, “for Portugal to be considered «safe», the gap between the long-term interest rates and growth rates must be sufficiently low in order to reduce public and private debt.”

Ever since this crisis started making the headlines, Portugal has been largely overshadowed by Greece, attracting only a mild attention from international media and maintaining a discrete profile. In the end, what also remains hidden from the camera and the major headlines is the human drama: the fact that close to 20% of the Portuguese population currently lives below the poverty line.

Edited by:
Margarida Hourmat
Photo Credits: Pedro Ribeiro Simões via Flickr