The Austerity Plot Thickens in Portugal
European and IMF officials have made great efforts to convince the public that the Euro Zone crisis is the result of Greece’s failure to comply with austerity measures and not the fault of the measures themselves. This narrative is taking a series of hits as the economic crisis deepens in Portugal, a country that passed just last month an evaluation on its compliance with the Troika’s structural adjustment program.
Last week it was revealed that the budget deficit for the first quarter of 2012 was 7.9%. To compare, the first quarter of 2011 saw a budget deficit of 7.5%, this before the Troika intervention and their deficit reduction policy prescription. The deficit spike is being blamed on a fall in tax revenue with record unemployment shrinking the number of people paying taxes. In short, the austerity is killing the economy faster than the government can extract wealth out of it to pay international creditors.
The impoverishment of the country has been reflected in recent news headlines in Portugal. Wages in the country are experiencing a generalized fall with public sector workers living through a sharper decline. In the past few days, reports of medical workers receiving hourly wages of less than four Euros have illustrated the trajectory of the economic program by the ruling center-right Social Democrats. This isn’t a temporary downturn before the clouds clear, it is a conquest of wages and if it’s to be stopped it requires a social reaction to first halt the program but ultimately reverse it.
Crucially, the political consensus that has supported this austerity program is fading. The constitutional court just struct down a key part of the program which cut 13th & 14th month bonuses to public sector workers. The measure was struck down on reasons of inequity, the government having canceled the bonuses for civil servants while private sectors workers were exempt.
This court decision leaves the Passos Coelho government at a crossroads. It can try to renegotiate the “bailout” program with the IMF and European Union so that the terms are eased, thus providing the government budgetary space next year after this setback in the courts. Voices within the ruling party are already suggesting this. Prime Minister Coelho may choose to avoid renegotiation and double down on austerity to meet the current deficit targets. This would be a huge gamble with unemployment already at 15.2% and sectors like the construction industry warning it will rise far higher in the months ahead. A deep recession may very soon become a crippling depression if Prime Minister Coelho chases the generalized austerity that would comply with the constitutional court’s decision.