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Portugal not blowing in the wind

por John Wolf, em 02.10.15

 

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In January of 2011 Bloomberg TV interviewed me for two long minutes from the beautiful Praça do Comércio square in Lisbon, to borrow my take on Portugal´s economic and social condition and the big event of that day - the sale of treasury bonds in the open market. There was some vague hope that the going rate would reflect Portugal´s financial and economic condition. However, that form of diagnosis would prove to be insufficient, albeit correct – the country was in serious trouble and favorable financial lending conditions just wouldn´t fit the bill, they would be insufficient to address deeper concerns. The socialist government eventually admitted the demise and signed the terms imposed by the Troika, in the process managing to get the support of the two other mainstream parties which form the coalition soon after put in place, following a stunning electoral defeat. Difficult times lay ahead for Portugal, but before I go any further, let me convey the following: ideologically it would make no difference who was in power or who held government – the problems were structural and long overdue. The coalition government of the social-democrats and the christian-democrats, that succeeded the socialist previously in power, not only received one rotten apple, but an overwhelming legacy of imbalances from previous decades. Portuguese European Economic Community (EEC) and European Union (EU) membership had brought an array of good things and change to a periphery country hindered by poverty for such a long time. Portugal can now boast the largest network of highways in Europe, but the easy money handed over by Brussels proved to be a temptation for gross government mismanagement and corruption. And there was more. The body of civil servants had already then for many years outgrown the capacity of a nation of ten million inhabitants, debt had flared up and the economy was unable to position itself in a competitive manner in the midst of a global scenario of transfer of wealth from West to East.

 

In 2012 Portugal started to implement the recipes from the Troika´s instruction manual. Unemployment rocketed as harsher fiscal measures forced companies to restructure the nature of their operations. The workers were the first to go and capital expenditure was brought to a halt. The reforms envisaged by the Troika had been implemented, but not to the degree demanded by the working class of Portugal. Street protests were staged in Lisbon and other important cities. Some issues did not go unnoticed by large swaths of the population, whatever their political inclination, either adepts of the Greek left-wing, inspired by the antics of Syriza, or subscribers of neo-liberal solutions put forth by Wall Street. In the years that followed, the privileges of politicians had hardly been tinkered with and banks in dire straits were receiving preferential treatment at the expense of taxpayers. Those unemployed and those that had fallen out of the social security network did not take this lightly. Portugal was fulfilling the promises made to the Troika bosses, but its people were suffering. One wonders if there was a better choice, an alternative. The situation had become economically and socially distressing, and as members of the European Monetary Union, currency devaluation had become an impossibility, a myth – the Euro for good and for bad. Portugal needed urgently to raise cash for treasury needs and International Monetary Fund installments, so the privatization of state-owned companies was the route to take, which led to a fierce proto-nationalist discussion on the loss of economic sovereignty. Many of the politically motivated arguments were fished from historic considerations, a by-product of the Pink Carnation Revolution of 1974 that overthrew 48 years of Salazar dictatorship. Sadly enough, Portugal still tends to cling onto concepts of the past when it must jump-start a totally different political approach. Portugal has been held in the ideological straightjacket of the discussion between the Left and Right wings of the political spectrum and has difficulty in thinking beyond the old fashioned paradigm.

 

Presently Portugal is to be found at the perilous crossroad of geopolitical and economic events. One could argue that the country has already hit the bottom and that the economic and social situation is slowly turning around. Recently unemployment data was disclosed and the number presented was slightly favorable: 12.2%, although the parties in the opposition do not concur, even if the numbers are official. One may even consider that Portugal seems to have entered a period that would be best described as a “cautious recovery”, but always bearing in mind some important caveats and unpredictable risks. One may ask which factors have most likely contributed to a GDP uptick in the last quarters, although any reply must take into account not only quantifiable vectors, but dimensions that relate to the macro-social mood and the confidence in the future felt by the people. In financial and economic terms, we may state that the positive impacts result from revenues from tax collection, the elimination or downsizing of public sector services, the optimization of production units in the private sector, the increment of the export of goods and services where Portugal already had a stronghold, the general lending environment with interest rates close to zero, the intervention of the European Central Bank that acted as the “replacement buyer” of Portuguese treasuries, and one other discretionary vector that has yet to be fully understood or accepted as such – the direct transfers of funds of Portuguese emigrant workers that left their country in order to provide for their families. All this must be part of the mix that explains a possible turning point. However, one must add one other dimension that suffers the volatility of seasonality. Tourism has hit record figures in 2014, and 2015 will most certainly replicate or even surpass the previous good results. As such, Portugal must be identified as a tourism-based economy with a number of satellite sectors that operate in specialized niche areas. A country at the forefront of technology, with skilled workers and unhindered by radical or extreme political phenomena that afflict other nations. Portugal must continue its path of economic consolidation and slowly commit itself to innovate its political matrix. One could argue that Portugal´s leaders have been its worst enemy, but the following analysis must be kept in mind; the collective nature of its Portuguese society has yet to flourish, in the sense that excludes the damaging culture of traffic of influence, special connections and corruption. The political forces in Portugal are to be held responsible for the destiny of this nation, but its people must develop the conventional wisdom that the future lays in its hands. In that line of considerations, one may state that Portugal is a divided nation. The up and coming elections of October 4th will most likely reflect the mixed assessment of voters. We may identify those that believe that Austerity has worked and that a return to a socialist led government would mean a reversal of what was achieved, and on the other hand, those battered by unemployment and difficult living conditions, are probably more inclined to punish the government for the past 4 years of imposing rules. A clear-cut winning scenario seems to be out of the question. And that may not be what Portugal needs most – a mandate to finish business and move along.

 

Portugal must also cross its fingers and hope that Greece doesn´t derail itself, that China doesn´t catch a serious cold, or that Russia does not drag the western nations into some wide-scale European conflict. A combination, of all or most of those, paradoxically, might give Portugal the chance to do what it historically does best: sit on a fence and ride the winds.

 

So, quite literally, Portugal depends on itself as much as it may blow in the wind…

 

  • article written in english per request by an international think-tank. To be also published in German.

 

 

publicado às 11:39







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