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The recipe not working



Among the European nations most devastated by debt, Portugal was widely hailed a year and a half ago for the willingness of its politicians and people to endure welfare cutbacks, higher taxes and international supervision in exchange for a $100 billion bailout.

But with taxes up by 30 per cent and unemployment up to more than 15 per cent, angry Portuguese have taken to the streets in unprecedented numbers over the last two months to protest that enough is enough. Violence broke out during a confrontation on November 14 in front of parliament. A widely praised political consensus on the need for austerity has exploded, with Socialists accusing the ruling Social Democrats of squeezing the poor to pay the rich.

Welfare cutbacks
From labour unions, politicians and academics has arisen the question of whether reliance on merciless welfare cutbacks and expensive tax hikes is really the best recipe for pulling Portugal and the rest of Europe out of its debt crisis.

Led by Germany, European Union governments have continued to proclaim that budget discipline is the first step to renewed prosperity. But across the continent, doubt has grown as it becomes clear that austerity measures are also smothering hopes of an early return to economic growth, without which the goal of paring down debt levels seems out of reach.
Emaciated economies, particularly in southern Europe but also infecting the better-off northern tier, have led to a slowdown in business activity across the board, with no end in sight. In many cases, this has produced not only painfully high unemployment but also a slump in tax revenue that is desperately needed to balance budgets and pay off long-accumulated debts that caused the crisis in the first place.

"The recipe is not working," declared Pedro Marques, a Socialist member of the Portuguese parliament who specialises in economic and social affairs.

Rising government debt
Nowhere has the question arisen with more acuity than here. In the year and a half since Portugal signed an austerity-oriented bailout deal with the European Union, the European Central Bank and the International Monetary Fund, not only has the country fallen into recession, but government debt has increased: from 93 per cent of gross domestic product in 2011 to 118 per cent this year and a forecast 122 per cent in 2013.

"We need to reverse this vicious circle," said Armenio Carlos, head of Portugal's largest labor union, the leftist General Confederation of Portuguese Workers. "What we need to do is grow the economy."

Nevertheless, a "troika" of inspectors from the three lender institutions recently approved a sixth bailout payment, for $3.2 billion, in exchange for proof from Prime Minister Pedro Passos Coelho's government that prescribed austerity measures were being carried out as promised. Passos Coelho's finance minister, Vitor Gaspar, expressed satisfaction at the international seal of approval and vowed the reforms will continue even though they are not producing results as fast as expected.

"Nobody is happy about this except Vitor Gaspar," complained Pedro Tadeu in a column the next day in the independent Diario de Noticias newspaper. "It is sadism? Is it masochism? How can we explain this blindness?"
Despite the hand-in-hand approach by Socialists and Passos Coehlo's Social Democrats, resentment had been building for months over high unemployment and welfare cutbacks. It burst into the open in September when the government announced a sharp reduction in payroll taxes on businesses as a way to improve competitiveness.

Paulo Mota Pinto, a Social Democrat member of parliament and head of the European Affairs Committee, said the government's decision was a good idea but acknowledged it was "badly explained, badly perceived." "People saw it as a transfer of money from the poor to the business owners," Mota Pinto explained.

Demonstrations
Largely spontaneous demonstrations broke out on September 15 in 30 cities around the country, organised mostly on Facebook and largely catching the political establishment by surprise. They put into the street an estimated 10 per cent of Portugal's 10.7 million inhabitants, the largest such outpouring since the overthrow of the Salazar dictatorship in 1974. Other, smaller protests have continued since then, including the November 14 clashes that left the creamy stone steps of parliament stained with red and green paint.
The explosion of popular resentment was the signal for the Socialist Party to break with Passos Coelho's commitment to the troika-imposed austerity program, which its leaders said must be revised to produce growth if Portugal is to climb out of the debt hole.
Forgotten was the fact that it was a caretaker Socialist government that signed the package in the first place, in May 2011, just before being voted out of office. Since then its leader, Jose Socrates, has been living in Paris and studying philosophy.

Manuela Correia, a 46-year-old single mother, grew to adulthood during the boom years that followed Portugal's adhesion to the European Union in 1986. Her family lived comfortably, she attended good schools, and she landed a job as an executive secretary with a multinational company in Lisbon, the capital. But that ended four years ago, when the first round of Europe's economic crises hit and the multinational headed for greener pastures. Correia was fired and reduced to raising her son on unemployment benefits. No jobs were to be had. Last May, the benefits ran out; Manuela's retired father now splits his $200 pension with her, and they make do, she said, by "stretching everything."

At the Saint Jose parish centre run by the Rev. Joao Bras in the middle-class suburb of Algeirao, Correia had come in search of leads for a job. But there was none: no leads, no jobs, no hope. "I answer ads in the newspaper, I go to employment centers, I exchange tips by word of mouth," she said. "But nothing. There is nothing."

In the Correia family, she explained, people were not brought up in poverty. In her family, she said, people had jobs. They went to the right schools and lived middle-class lives. "We shouldn't have to pay for the government debt," she said, growing more heated. "They wasted the money on a lot of things. If they are out of money, why don't we ever see ministers take public transportation?"

Then her lips started to tremble. Tears welled up, then streamed down her cheeks.
It was unfair, she said, weeping openly and apologising: "I don't need anything from the government. I don't need handouts. I just need to work. Instead I am spending all my father's savings. And when he gets old, who is going to help him?"(Edward Cody/Washington Post-Bloomberg News)


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