Political crisis in Portugal: Becoming GreeceBy Eunice Goes on 16 July 2013
For the past two years Portugal has been trying hard not to become Greece. The centre-right coalition government in power since 2011 threw the red carpet at the ‘troika’ officials from the IMF, European Commission and European Central Bank, and has implemented the bailout out agreement with ideological zeal. But apart from getting the occasional praise from Eurozone officials the effort put into ‘not becoming Greece’ is not really working. Portugal is almost like Greece. Indeed, Portugal has just a few months to catch up with the level of political instability, economic depression and social turmoil that prevails in Greece today.
The political crisis of the past two weeks – which started with the resignations from the Finance Minister Vítor Gaspar and from the Minister for Foreign Affairs Paulo Portas (who is also the leader of the junior party of the coalition government) – is far from abating. After days of farcical resignations, hesitations and u-turns, the President Aníbal Cavaco Silva decided to intervene, but what he proposed is far from straightforward. He started by not accepting the resignation of Paulo Portas. He also did not accept the reshuffle proposed by the Prime Minister, Pedro Passos Coelho as a way of keeping the coalition alive. Instead he proposed ‘national salvation’ talks between the three main parties (the two centre-right parties that form the coalition government – Partido Social-Democrata and Partido Popular - and the main opposition party, Partido Socialista). With these talks the President aims to prevent the scenario of almost unavoidable early elections and to persuade the three parties to form a government of national unity which will then govern until June of 2014 (when the memorandum of understanding with the troika expires)
Above all, the President wants a relatively stable government that will be able to implement another package of public spending cuts worth 4.2 billion Euros (representing 2.85% of the GDP) which will come mostly from the elimination of thousands of public sector jobs.
At the time of writing these talks are still ongoing however it is unlikely that the three main parties will find a lasting solution to the current political crisis. The President wants nothing less than a miracle (he is a devout Catholic).
The already fragile authority of the Prime Minister (who faced five motions of confidence in the past 12 months) was further undermined by the President’s intervention. Moreover the relations between the two coalition partners are far from harmonious. The junior party of the coalition had voiced its objections to the ‘austeritarian’ zeal of the Prime Minister (that is why the leader of PP resigned two weeks ago).
Furthermore, the President expects the Socialist Party to endorse an ambitious programme of spending cuts which most likely will lead to a greater contraction of the economy and to an even bigger public deficit and public debt (several economists say that these cuts will result in a contraction of the GDP of 5.7% which will cause the debt to GDP ratio to increase by 7% to 132%). In fact, this course of action is exactly the opposite of the one defended by the socialists. The PS is demanding the renegotiation of the memorandum of understanding with the troika, a more flexible timetable to repay the debt and a greater focus on economic growth and job creation.
But even if the Socialists are cornered into accepting the terms of the President it is unlikely that whatever political arrangement they might come up with will result in a stable and lasting political solution. In this scenario it is likely that early elections will take place sooner rather than later.
Austerity Created the Political Crisis
Above all, the solutions proposed by the President do not address the fundamental causes of the current political crisis. The programme of massive public spending cuts, privatisation and the general retrenchment of the social activities of the state demanded by the troika’s memorandum of understanding did not produce the desired effects. If anything, the troika’s cure has worsened the situation.
After two years of austerity measures Portugal’s public deficit has risen to 10.6% of the GDP from 9.8% in 2011. The official figures for the public debt are equally discouraging. In 2011 public debt represented 108% of the GDP; in 2013 it stands at 127.3% of the GDP. These staggering figures are a result of an economy in recession. If in 2011 economic growth had stagnated, by 2013 the economy had contracted 2.3% and unemployment reached levels never registered in Portugal affecting 18% of the working age population (youth unemployment reached 43%).
Austerity policies are also leaving a profound scar in Portugal’s economic and social fabric. Many of the social conquests of the democratisation and economic modernisation processes such as healthcare rights, massive investments in education and public infrastructure have been eroded. In addition, the austerity drive has brought back social ills that EU membership was supposed to have cured, namely the return of poverty and mass emigration (though this time it’s the young and educated who are leaving). The country has witnessed as well the rehabilitation of an authoritarian style in political institutions that had never died but that democracy and greater equality had discredited. This creeping authoritarianism was recently on show when the president of the National Assembly Assunção Esteves compared a group of 50 protesters, who had interrupted a debate in Parliament, to Nazi executioners.
But despite the obvious failure of austerity as a cure to the debt crisis the troika insists on (perhaps lighter) doses of the same medicine. To do otherwise would be tantamount to admit to a failure of prescription but also of diagnosis. Indeed, countries like Portugal have debt problems not because they went on irresponsible spending sprees (a great proportion of public spending in Portugal in the last two decades was devoted to the much needed areas of education, research and development and infrastructure building) but mostly as a result of the design flaws of the single currency. These design flaws fall into two main categories. The first one is related to the folly of creating a monetary union between countries with very different economies but without the political mechanisms to address those wealth differentials. The second one is the Stability and Growth Pact, a mechanism created to reassure Germany but which in fact only suits the night-watchman’s state dreamt by Adam Smith.
For as long as the Eurozone insists on austerity as a solution to the debt crisis and refuses to address the single currency’s fundamental flaws, Portugal’s political and economic crisis will remain unsolved and the troika will have to learn how to live not with one but with several “Greeces”.
Eunice Goes is Associate Professor at Richmond University