Portugal: Austere New Year
4 May 2011
Jornal de Negócios
The 78 billion euro bailout plan announced on May 3 to help Portugal to avoid bankruptcy will likely not be as severe as feared by the Portuguese. Nevertheless, hard times lie ahead if they want to their country enjoy a new start, warns Jornal de Negócios.
When Pedro Passos Coelho [leader of the conservative opposition] asked Brussels a few months ago if Portugal could have another year to reduce its deficit he was called immature, irresponsible and a destabilising influence. Yesterday, Portugal won precisely what he had asked for. Thank goodness. What are we going to do now, to prevent one more year from being just-another-year?
We will only find out about the austerity programme of the IMF, ECB and EU today. It will be tougher than the PEC IV (4th Stability and Growth Programme). But not as tough as the “PEC V” that had been confabulated. We’re now watching the political victory debate: the game of “it’s their fault” has turned into “the credit is ours”. The players haven’t changed: PS (Socialist Party), PSD (Social Democratic Party, conservative) and PP (Popular Party). And there are, in fact, three who deserve the most praise for the tolerance shown to Portugal yesterday. But it’s a different three: IMF, EU and ECB. A bit of gratitude would be better than pride.
The external intervention in Greece was authoritarian, bitter and improvised. In Portugal it has just been authoritarian. The troika has given us one year to reduce the budget deficit, not out of kindness but because it believes that its “plan” is more likely to succeed this way.
Prime minister José Sócrates’ jubilation yesterday is, however, superfluous. The austerity that we have already built up and the new measures that lie ahead are worthy of a little bit of shame. But elections are like a carnival so no-one takes offence: politicians are only masks.
Yesterday’s good news will be followed by the details today. There are three kinds of measures: fiscal consolidation to cut the deficit and debt; economic policies to raise potential growth; and those aiming for sustainability in the financial system.
Retirees will see pensions over 1,500 euros cut. 1.4 million workers’ families and pensioners from the middle class will pay more income tax (IRS) (through limits placed on health and education allowances). The state will privatise whatever it can at bargain prices. The unemployment allowance will be lowered and redundancy will be cheaper for businesses. Help for home-buyers will be cut. Banks will be forced to lend less. Public transport companies will be squeezed. An increase in VAT, to offset a reduction in companies’ social security payments, is being studied.
And what is it all for? To turn the country face-up, when it is the other way round. The troika did not behave like a debt collector who has come to enforce payment of liabilities. It brought along, as we shall see today, a strategic plan to make the economy fairer and more competitive. The Portuguese, being conservative, are going to hate it. But the liberals [the troika] are in power now. They are not Portuguese and they have not been elected by the Portuguese, but they are in power.
The banks are going to suffer a backlash but they will be protected when it comes to access to liquidity. This liquidity will then be injected into the economy, with conditions. Labour laws will be relaxed, social mobility will improve, pay rises will depend on productivity instead of inflation, we shall learn to have a life based on the nominal economy, without levers. Businesses in protected sectors will lose privileges, there will be more competition. The Portuguese judicial system, is it hoped, will be reformed.
We have a new year for this task. It's great news. It is not going to be a blast, it’s going to be dreary. It should change our lives. Better our lives than currency, sovereignty or country. Happy New Year.