Portugal: A bitter pill too far? | Europe| News and current affairs from around the continent | DW | 04.07.2013
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Portugal: A bitter pill too far?

Portugal was seen as a model for Europe. It accepted its bitter austerity medicine with good grace, but as political and financial crises return, commentators are now asking whether perhaps it went too far, too fast?

A trader monitors the screens at a bank in Lisbon July 3, 2013. (Photo:REUTERS/Jose Manuel Ribeiro)

Lisbon traders had a turbulent week after two top ministers resigned.

For those who say that the eurozone crisis is back, Nicolas Veron has few words of comfort: "It's back? It never left!" A junior fellow with Brussels-based economic think-tank the Bruegel Institute, Veron is not surprised by the latest developments in Portugal and the reactions on the stock exchanges. "Markets were relatively calm in the past few months – but the problems are still there," he told Deutsche Welle, "financial problems, low economic growth, fiscal issues, Portugal's social and political tensions."

Those tensions reached a temporary climax this week when two top government officials resigned in Portugal. The architect of the country's austerity, Finance Minister Vitor Gaspar, stepped down. He cited public backlash against his policies. Less than a day later, the foreign minister quit, too.

'Boomerang effect'

The Portuguese government seemed to have finally heard the voices of the population. In June, thousands of Portuguese workers went on strike, amassing on the steps of parliament in Lisbon and singing nationalist songs – among them civil servant Joao Vasconcelos who said the recipe was not working. "Unemployment is high, every measure had a boomerang effect." The demonstrators were fighting for some dignity, he added.

Bruno Cabral, a young aspiring filmmaker who also participated in the protests, also blamed austerity for the country's high unemployment, which is at 42 percent for those under 25. "I think we cannot build any future for the country if we don't invest in culture, education, science," he said, "basic things that austerity is completely destroying""

Cabral is the typical face of the crisis in Portugal and perhaps of southern Europe: well-educated, multilingual – but with no hope of a job. Like many other young Portuguese who have already left their home country, Cabral is getting ready to look for a job in Portuguese-speaking Brazil this fall, "to see if I have more chances there."

'Not a lot of support from the eurozone'

A file picture dated 03 June 2013 of Portuguese Minister of State and Foreign Affairs, Paulo Portas waving during an event in Oeiras. (Photo: EPA/ANDRE KOSTERS)

Foreign Affairs Minister Paulo Portas stepped down - just hours after Portugal's Finance Minister resigned.

"That migration per se is part of Portugal's adjustment process," said Nicolas Veron from the Bruegel Institute. "It's a painful process, but it shouldn't be considered unnatural. I'm not saying it's a good thing. I feel the pain. But I don't think it's a problem. The problem is that Portugal has to adjust. And there is not a lot of support from the eurozone."

In 2011, it became too expensive for Portugal to finance itself on the markets. The country agreed to a 78 billion euro (101 billion dollar) bailout from Europe. In exchange, Lisbon promised the so-called troika of the European Commission, the European Central Bank and the International Monetary Fund to hike taxes and cut public salaries and benefits. But the austerity measures have plunged Portugal into a deeper recession with higher unemployment than had been expected, sparking mass protests and strikes.

For some Portuguese, their tax burden has doubled. Health care is more expensive. And those lucky enough to have jobs are losing them. And so, support for the measures has been dwindling.

Too good a student?

Of all the bailed-out countries in Europe, Portugal had been the 'good student' – taking the austerity medicine its lenders prescribe. The government took it even further. It doubled budget cuts and tax hikes in the first year after its bailout. But economists now say that may have backfired. "The prescription itself was wrong," said Arlindo Oliveira, who heads one of Lisbon's top universities. "The government took it too far, was too good of a student. And I think it was bad for Portugal and ultimately will be bad for Europe."

Oliveira has seen some academic departments gutted, as scholars leave for more stable jobs abroad. And he says austerity has done so much damage, Portugal may need a second bailout from Europe. "It certainly looks increasingly harder to pay the debt. So it looks like probably some additional measures will have to take place."

A second bailout is not the only option, Nicolas Veron from the Bruegel Institute told DW. In theory, Portugal's partners have several instruments to make the adjustment process easier for the country, he said: "They can review the conditions, restructure the debt, restructure the payment." But that, he added, requires political willingness on the part of Europeans. Both Portugal and the Troika had hoped that the country could regain market access as early as mid-2014. "Now the timetable is a bit delayed. But it doesn't mean that they won't manage to exit the current assistance program phase."

Suffering doesn't encourage rationality

Protesters shout slogans and carry a banner through the corridors of a shopping centre in Lisbon June 27, 2013. (Photo:REUTERS/Jose Manuel Ribeiro)

In late June, workers across Portugal staged a general strike.

In light of the political turmoil and with pictures of violent clashes between angry anti-austerity rioters and the police in Athens and Madrid still in their minds, however, European Union leaders urged Lisbon this week to resolve the crisis quickly. They fear a resurgence in tension in the eurozone's debt-laden periphery. "The political situation should be clarified as soon as possible," the European Commission's Portuguese president, Jose Manuel Barroso, said on Wednesday.

After the resignation of cabinet ministers, Portugal's coalition government is hanging by a thread. Opposition parties are calling for early elections. They want to renegotiate the terms of Portugal's bailout. International economics expert Nicolas Veron warns that Portugal's partners had better take the situation seriously.

Even the patience of Portuguese - whose protests have for now been dominated by folk songs, rather than riots - could run out, he warned: "Suffering doesn't always increase people's rationality. When you go beyond a certain threshold of pain maybe you're readier to listen to simplistic discourses of anti-system politicians which ultimately you know are not responsible, but which at least express some truth which the mainstream parties are not able to express. That's what makes the current political situation so dangerous."

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