Portugal: Patient is still fragile
14 February 2012
With its political consensus, labour agreements and reforms in progress, Portugal appears to be better off than Greece. But the threat of bankruptcy remains and a fresh turn of the screw is still possible, warns Expresso.
In Portugal, anyone who has watched the footage of pitched battles between demonstrators and police in Syntagma Square and heard the reports of political party disputes over the latest austerity package will have no trouble distinguishing between the respective situations of the two countries. In Portugal, we have a political consensus backed by 80% of MPs, and a social agreement [between political parties and unions] on the implementation of labour market reforms demanded by the troika [the European Commission, European Central Bank, and the IMF], which include more flexible rules on individual lay-offs. The government and its social partners have reached agreement on plans to reduce the number of public holidays and leave days. Unemployment benefit has been cut. The law on rents has been changed [to facilitate the eviction of non-paying tenants and put an end to rent ceilings], while the government stake in Energias de Portugal (EDP) and Rede Eléctrica Nacional (REN) has been sold to Chinese funds. And all of this (and more) has been done without agitation or trouble, and certainly without any violence. For all these reasons, Portugal is clearly not Greece, but these reasons have not been enough to convince everyone of this fact. In particular, doubts have been expressed about Portugal’s ability to obtain renewed funding from the markets in 2013. The conversation between the German and Portuguese finance ministers recorded by an indiscreet TVI camera is most edifying on this topic: Wolfgang Schäuble himself alludes to a possible readjustment of Portugal’s bailout and informs his opposite number that Germany would be in favour of such a move. Remarkably, this indiscretion was enough to calm the markets and reduce the rates of interest on Portuguese sovereign debt. But let there be no illusions. The idea, which is increasingly gaining ground, that everything will work out fine is inherently dangerous, because a lot will depend on numerous factors over which we have no control. For example, we may have to contend with the collapse of Greece and its exit from the euro, or a European recession that proves to be more severe than expected. There is no doubt that if the state which was the cradle of Western democracy collapses, the European Union will need another example to demonstrate the efficiency of the austerity polices defended by the troika: and Portugal could be this example. But we should expect that our partners will demand further sacrifices before they provide further aid. And there is very little mystery about the nature of these sacrifices, which are immediately apparent in the ten commandments the troika asked the Greek political parties to sign. There you can see that we have not yet been asked to reduce the minimum wage (which is lower than the one in Greece, 485 euros as opposed to 750 euros), to get rid of 13th and 14th month payments in the private sector, to cut back on paid holidays, or to push through public sector lay-offs. At the same time, the obsessional drive to reduce the Taxa social única [worker and employer social security contribution] has yet to bear fruit. That the markets are acknowledging that there is a difference between Portugal and Greece is excellent news, but it also implies that we may have to face our own road to Damascus before we are out of danger: and the road to Damascus is often a long one.