Baluarte
06-30-2013, 07:42 AM
http://www.economist.com/news/europe/21580178-despite-shrinking-economy-portuguese-want-keep-euro-floundering
Portugal and the euro: Floundering on
Despite a shrinking economy, the Portuguese want to keep the euro
IS PORTUGAL slowly drowning? Ever since the European Union and IMF rode to the rescue with a €78 billion ($111 billion) bail-out in 2011, the economy has shrunk, unemployment has soared and thousands of small firms have failed. Joblessness for under-25s is close to 43%, so the educated young are emigrating fast. Every forecast of what Pedro Passos Coelho, the prime minister, warned would be “two terrible years” has been too optimistic. The government has had to amend this year’s budget to hold down its deficit. And the OECD rich-country think-tank predicts further falls in GDP.
http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20130629_EUC787.png
A decade of stagnation has turned into Portugal’s worst recession for two generations. Many fear that the growth promised in return for austerity and reform is out of reach. “Adjustment is just another way of saying impoverishment, inequality… [and] condemning thousands to unemployment,” José Pacheco Pereira, a critic in Mr Passos Coelho’s own Social Democratic party, wrote last month.
Big tax rises and spending cuts have destroyed jobs and companies, yet not done enough for fiscal consolidation. The government says that its creditors may need to show more “flexibility” over next year’s targets, despite two earlier relaxations. The prime minister’s promise not to cut public-sector jobs, made before his election two years ago, now rings hollow as the government prepares to lay off thousands of civil servants and teachers. On June 27th the trade unions, which tend to draw their strength from the public sector, staged a 24-hour general strike.
Yet Mr Passos Coelho insists that Portugal will complete its three-year adjustment programme in June 2014, when he hopes to regain full access to the capital markets. He points to a current-account surplus, export growth, a sharp fall in the structural budget deficit, a significant drop in bond yields and a recent return to the market with a ten-year bond issue. “Two-thirds of the necessary adjustment has been completed,” he says. “Within a year Portugal will have regained its independence and not have to render accounts [to its international creditors] every three months.”
Mr Passos Coelho has no shortage of fans in the EU. “There is great appreciation in Europe of the way Portugal is tackling its challenges,” Jeroen Dijsselbloem, the Dutch head of the Eurogroup of finance ministers, said on a recent visit to Lisbon. The EU, which has just agreed to “bail in” bank creditors in future rescues, badly needs a success story. If Portugal cannot pull through, despite a centre-right government that has embraced free markets with zeal, critics will say the problem must lie in the cure and not its application.
A recent poll shows a majority of Portuguese want the adjustment programme rewritten or scrapped. Yet support for staying in the euro remains stable at around 70%, little altered by austerity, recession or unemployment. Even so, a book advocating leaving the euro has made the bestseller charts in some shops. “A few economists support this position,” says António Costa Pinto, a professor of politics in Lisbon. “But Portuguese society as a whole knows that leaving the euro would result in much greater impoverishment than they are experiencing now.” Portugal may be floundering, but it still sees the euro as the best available life-jacket.
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Portugal and the euro: Floundering on
Despite a shrinking economy, the Portuguese want to keep the euro
IS PORTUGAL slowly drowning? Ever since the European Union and IMF rode to the rescue with a €78 billion ($111 billion) bail-out in 2011, the economy has shrunk, unemployment has soared and thousands of small firms have failed. Joblessness for under-25s is close to 43%, so the educated young are emigrating fast. Every forecast of what Pedro Passos Coelho, the prime minister, warned would be “two terrible years” has been too optimistic. The government has had to amend this year’s budget to hold down its deficit. And the OECD rich-country think-tank predicts further falls in GDP.
http://media.economist.com/sites/default/files/imagecache/290-width/images/print-edition/20130629_EUC787.png
A decade of stagnation has turned into Portugal’s worst recession for two generations. Many fear that the growth promised in return for austerity and reform is out of reach. “Adjustment is just another way of saying impoverishment, inequality… [and] condemning thousands to unemployment,” José Pacheco Pereira, a critic in Mr Passos Coelho’s own Social Democratic party, wrote last month.
Big tax rises and spending cuts have destroyed jobs and companies, yet not done enough for fiscal consolidation. The government says that its creditors may need to show more “flexibility” over next year’s targets, despite two earlier relaxations. The prime minister’s promise not to cut public-sector jobs, made before his election two years ago, now rings hollow as the government prepares to lay off thousands of civil servants and teachers. On June 27th the trade unions, which tend to draw their strength from the public sector, staged a 24-hour general strike.
Yet Mr Passos Coelho insists that Portugal will complete its three-year adjustment programme in June 2014, when he hopes to regain full access to the capital markets. He points to a current-account surplus, export growth, a sharp fall in the structural budget deficit, a significant drop in bond yields and a recent return to the market with a ten-year bond issue. “Two-thirds of the necessary adjustment has been completed,” he says. “Within a year Portugal will have regained its independence and not have to render accounts [to its international creditors] every three months.”
Mr Passos Coelho has no shortage of fans in the EU. “There is great appreciation in Europe of the way Portugal is tackling its challenges,” Jeroen Dijsselbloem, the Dutch head of the Eurogroup of finance ministers, said on a recent visit to Lisbon. The EU, which has just agreed to “bail in” bank creditors in future rescues, badly needs a success story. If Portugal cannot pull through, despite a centre-right government that has embraced free markets with zeal, critics will say the problem must lie in the cure and not its application.
A recent poll shows a majority of Portuguese want the adjustment programme rewritten or scrapped. Yet support for staying in the euro remains stable at around 70%, little altered by austerity, recession or unemployment. Even so, a book advocating leaving the euro has made the bestseller charts in some shops. “A few economists support this position,” says António Costa Pinto, a professor of politics in Lisbon. “But Portuguese society as a whole knows that leaving the euro would result in much greater impoverishment than they are experiencing now.” Portugal may be floundering, but it still sees the euro as the best available life-jacket.
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