Portuguese finance minister Vítor Gaspar (pictured above) spoke to a small audience at the Brookings Institution Tuesday, notably less than 36 hours after Cyprus and the ‘troika’ of the European Commission, the European Central Bank and the International Monetary Fund agreed on the terms for a Cypriot bailout — the fifth such eurozone bailout during the currency zone’s sovereign debt crisis.
Of course, Portugal is one of those of other five countries, and Gaspar, for the past 21 months, has been responsible for implementing the terms of Portugal’s own bailout program.
Gaspar presented as optimistic a case as possible for Portugal’s current economic state on Tuesday. But he admitted that despite gains in lowering the country’s budget deficit, restoring Portuguese banks to greater health, and boosting the growth of Portuguese exports (the latter as much a sign of painful ‘internal devaluation’ of wages and incomes within Portugal as any sign of newfound productivity or competitiveness), Portugal’s GDP growth and employment rate remain problematic. The Portuguese economy contracted by 1.6% in 2011 and 3.2% in 2012, and is expected to contract by a further 2.3% in 2013, while its unemployment rate, as of the last quarter of 2012, is 16.9%, its highest level yet.
As Gaspar noted, Portugal’s economy — second only to Italy’s — was already on the ropes when it entered the eurozone. In particular, from 1990 to 2012, he claimed that the Portuguese economy marked a poorer performance than either Japan during its ‘lost decade’ or the United States during the Great Depression. Regardless of whether that’s exactly right, there’s no denying that Portugal has faced long-term structural problems — since 2000, it’s notched GDP growth in excess of 2% just once (in 2007, when it grew by 2.37%, and that was at the height of the eurozone and global credit boom).
Gaspar placed much of the blame on Portugal’s failure to pursue macroeconomic stability in accordance with ‘best practices’ — i.e., Portugal simply failed to adjust properly upon accession to the eurozone 14 years ago.
Gaspar serves under prime minister Pedro Passos Coelho, whose liberal, center-right Partido Social Democrata (PSD, Social Democratic Party) came to power in the last election in coalition with the more socially conservative Centro Democrático e Social – Partido Popular (CDS-PP, Democratic and Social Center — People’s Party).
Among his solutions are greater EU-level banking union as a means of reducing the risk premium associated with peripheral economies such as Portugal’s — Gaspar added that the higher borrowing costs that constitute financial headwinds, especially in the context of budgetary adjustment.
But it was surprising not to hear any mention of the emigration of up to 1 million Portuguese from the country over the past 14 years — and nearly 250,000 since 2011 alone. Passos Coelho in late 2011 was criticized when he suggested that young, enterprising Portuguese citizens should emigrate to Portuguese-speaking countries, such as Brazil in South America, or to Angola in southeastern Africa, still in the throes of an oil boom. Angolan visas issued to Portuguese nationals jumped from just 156 in the year 2006 to nearly 150,000 by mid-2012.
Mozambique, another former Portuguese colony, apparently issues 200 visas a day to Portuguese nationals.
Invariably, that escape valve has kept Portuguese unemployment lower than the rates over 25% recorded in Spain and Greece.
Edward Hugh at A Fistful of Euros has made a very compelling case that the emigration of younger, working age Portuguese, combined with a decreasing birth rate and greater longevity has resulted in relatively fewer workers contributing to pensions and health care for relatively greater numbers of retirees, placing extraordinary long-term fiscal pressure on Portugal, given the lackluster expectations for future growth:
No wonder the young are leaving, even if the youth unemployment rate wasn’t 38.3%, just think of all the taxes and social security contributions the remaining young people are going to have to pay just to keep the welfare ship afloat. Patriotism at the end of the day has its limits.
Unfortunately population flight and steadily rising unemployment aren’t the only problems the country is facing. The economy is also tanking, and getting smaller by the day.
The June 2011 election brought the defeat of the center-left Partido Socialista (PS, Socialist Party), which had governed Portugal under former prime minister José Sócrates, who came to power after the 2005 election and after popular former Social Democratic prime minister José Manuel Barroso left Portuguese politics in 2004 to become the president of the European Commission. Sócrates’s Socialists were reelected with a smaller mandate in the 2009 election.
The vote followed a victory by the opposition parties in Portugal’s Assembleia da República (Assembly of the Republic), when they refused to support the Socialist government’s budget-correcting tax hikes and spending cuts in March 2011, leading to a major defeat for Sócrates.
The ensuing campaign was waged while Sócrates’s government negotiated a €78 billion bailout for Portugal with the ‘troika,’ which necessitated spending cuts and tax hikes in any event. Despite somewhat of a comeback in public support, Sócrates and the Socialists suffered their worst defeat in two decades on the lowest-ever Portuguese voter turnout. It left the Socialists with just 74 seats (a loss of 23), to 108 seats for the Social Democrats (a gain of 27), and 24 seats for their ally, the People’s Party.
But it’s the Sócrates-negotiated bailout that Passos Coelho and Gaspar have been left to implement, and the Social Democratic government has become just as unpopular in implementing the harsh austerity measures that have, in the short-term, exacerbated a contracting economy and roiling unemployment.
According to one recent mid-March poll, the Socialists, now under the leadership of António José Seguro, have 31.6% support to just 25.1% support for the Social Democrats and 9.4% support for his coalition allies, the People’s Party.
Two far left forces are gaining strength — in third place with 12.2% is the Coligação Democrática Unitária (CDU, Democratic Unity Coalition), an alliance between Portugal’s longtime communist party and its smaller green party, and in fifth place with 7.1% is the Bloco de Esquerda (Left Bloc), a newer socialist left party founded in 1999.
Compared to 2011, the CDU (with 16 seats in parliament) and the Left Bloc (with eight seats) have made the largest gains in polls, which isn’t terribly unexpected given that both the Social Democrats and the Socialists have been tarnished with support for a bailout and accompanying austerity program that’s massively unpopular.
As in many countries ruptured by the eurozone sovereign debt crisis, both the main center-left and center-right parties have been compromised by the support of Brussels-directed austerity measures, so there’s a fear that the next elections could mark the rise of extremist and/or more euroskeptic parties — a trend in the February 2013 Italian elections and the May and June 2012 Greek elections.
Seguro last month called for a renegotiation of the Portuguese bailout to ease conditions in the country as its economic condition continues to worsen:
“We need more time and a delay of interest payments,” [Seguro] told journalists. “There cannot be more austerity, there has to be a strategy of growth.”
The long-term structural difficulties in the Portuguese economy that Gaspar himself highlighted, however, mean that the blame for the country’s current macroeconomic woes can hardly be placed on either Passos Coelho’s Social Democratic government or even on Sócrates’s Socialist government before it, but on a conflation of private and public sector actors since Portugal’s 1986 entry into what’s now the European Union and its accession to the eurozone in 1999.
Photo credit to Kevin Lees — Brookings Institution, Washington DC, March 2013.