Portugal Protests to Continue as Austerity Measures Near

Pedro Marques, a politician in the opposition Socialist party, sits on the cross-party budget committee and works with the “troika” – the European Central Bank, the EU and the International Monetary Fund – that bailed out Portugal on condition that it follow a strict programme of budgetary discipline. He wonders how they will respond to the protests in the country previously held up as a poster child for austerity.

“We had that huge demonstration but a week after you had the demonstration in Spain where everyone was arrested. I don’t know what impresses the troika more, what is more a sense of despair. We are calm, we abide by the law, but 1 million people in the streets, it is 10% of our population. If they don’t see this is a country rising against this approach, what kind of message do we have to give?”

The number of protesters is disputed but, in many ways, the message from Portugal could not be clearer. The rightwing coalition imposed austerity with almost religious zeal. It cut wages, raised taxes, privatised state-owned companies and overhauled labour laws. But still the deficit stays stubbornly high, while the country has sunk into the worst depression since the 1970s.

Many of the measures simply backfired. In January, for example, the government raised VAT in restaurants from 13% to 23%, hitting sales and therefore tax revenues almost immediately. What was previously a regular outing for many became far too expensive for a population that had seen its wages cut. Restaurant owners can now be seen staring mournfully out of empty glass-fronted dining rooms as potential customers hurry past.

Local manufacturers also suffered. Portuguese companies sell almost 70% of their goods domestic consumers, many of whom no longer have the money for non-essential items. As companies went bust or sales slumped, so did the government’s tax receipts.

But the rise in unemployment has been the most shocking. Official figures put the jobless rate at 15.7% but that only accounts for those registered with job centres. Portugal’s largest union, the CGTP, says many have given up looking for work and the jobless rate is over 20%, or 1.3 million. That puts a further strain on the public finances, as those who have never been on benefits before become reliant on the state. As a result, many of the savings made through austerity have been wiped out. What’s more, Portugal is far from growing its way out of the deficit, with the economy expected to shrink by 3% this year, and another 1% next year.

via Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza
Alfonso Esparza

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