Portugal’s crisis of politics and growth

Editorial do FT sobre o estado atual de Portugal.

Portugal is reaching the political limits of austerity. The resignation of two ministers has sparked a crisis that threatens to bring down the government. Whatever the outcome, the €78bn bailout programme agreed in 2011 is now in jeopardy and the soaring yields on Portugal’s debt suggest a new bailout may be required.
Lisbon has been diligent in applying the measures demanded by its saviours – the European Commission, the International Monetary Fund and the European Central Bank. In just two years Portugal has completed about two-thirds of the adjustment required to stabilise its budget deficit. There has been strong consensus behind difficult reforms such as liberalising the labour market. Yet a deeper and more drawn-out recession than expected has weakened that consensus just as Portugal prepares for the most difficult phase of its austerity regime ahead of the scheduled exit next summer. This would require more cuts to the size of the state, to pensions and to wages. All this at a time when unemployment is already set to rise above 18 per cent.
The reality of Portugal’s economic challenges is finally beginning to set in and not all will be addressed by the troika’s belt-tightening measures. Though Lisbon and Dublin have often been relegated to the same class in the eurozone periphery, the causes of their respective traumas are fundamentally different. Ireland’s was born of excess in property and credit. But it has a highly skilled workforce and reasonably robust industry to provide a platform for growth when the world economy begins to revive. Portugal, however, has suffered from a rapid erosion of its industrial base in recent years. What remains is uncompetitive and its labour force is low-skilled. Its economy had been stagnating for a decade before the crisis hit. There is no guarantee that even if Lisbon meets the troika’s conditions, sustainable growth will emerge. Without that, Portugal’s ability to reach manageable debt levels must be in question.
Portugal’s creditors should acknowledge that their programme is flawed. The troika has had to relax deficit targets twice. There is every chance that in the absence of global growth they will be asked to relax them yet again. This should be done. The ECB has also indicated that it stands ready to help Portugal refinance should investors stay away once it exits its programme. As Lisbon’s needs have been addressed for this year and part of next, Portugal and its creditors have a bit of breathing space. It must not be wasted. Both debtor and creditors should use the time to devise measures that will help the country build a platform for future growth that could be applied in return for such help.
This will require more courage from Portugal’s politicians. They will have to take on vested interests who jealously guard privileges in the civil service or in sectors such as telecoms or energy. But creditors should also realise that without the promise of growth and better times ahead, no politician can ever hope to win such a battle.

Fonte: FT