The Austerity Regime in Portugal Attempts Its Most Brazen Theft Yet

My last post went into how austerity has failed in Portugal just as it failed before in Greece. Friday was another landmark day in the crisis, showing how Portugal is moving from a deep recession to economic meltdown and the accompanying social and political meltdown. Prime Minister Passos Coelho announced a 7% tax hike on both private and public sector workers. This represents a full month’s wage being taken from workers next year while the government simultaneously cuts the social security contributions for businesses and employers.

The reaction was quick and certain outrage. An anti-austerity protest planned for Saturday had been met with complacency the last two weeks. After the latest austerity measures, the protest has taken off, with the protest in the capital now being matched with demos in other major cities. Retired members of the ruling party have even expressed shock at this 7% tax hike on the wages of workers. The regional governor of Madeira from the same ruling party distanced himself from the national party. The political consensus on austerity is fast eroding with the harshest austerity now being generalized in its implementation.

It’s worth retracing recent events as Portugal is overlooked with a European continent covered with depressed economies. The constitutional court struck down a measure that cut two months worth of pay for public sector workers. The court considered the provision unfair, as it weighed the greatest sacrifices on public sector worker. The tax hike announced on Friday for both private sector and public sector workers is meant to fill the gap in next year’s budget from the constitutional court ruling. How cutting taxes for businesses and raising them on workers complies with the constitutional court’s demand for fairness? I have no idea and I will leave it to constitutional experts in Portugal.

The key is this brutal austerity will destroy consumer demand and increase unemployment as the country sinks into an economic depression. And to make matters worse, it is just the tip of the iceberg with the Troika currently in Lisbon seeking compliance with the deficit program that is well off track. The government in the weeks ahead will be forced to apply emergency cuts to spending this year while having to pass another austerity budget for 2013 in October. Rather than showing leniency after driving Greece into disaster, international creditors are intent on keeping Portugal on the same perilous course.

In terms of the Portuguese public, they’ve reached their capacity to absorb austerity, a claim being echoed by opposition parties. This inability to tolerate more tax hikes and budget cuts will be demonstrated next Saturday and in the following weeks with left-wing labor unions stepping up resistance with three days of protest and work stoppages just in the first half of October. I expect the UGT union confederation to rejoin the left-wing unions in social struggle with the government showing total unwillingness to pursue pro-growth measures desired by the centrist union confederation.

At this point, the door to slow or stagnant economic growth has been closed by the government’s commitment to austerity. Instead, the country will slide into deeper misery, poverty and unemployment. The reality is that the recession will not end next year as promised by prime minister Passos Coelho in recent weeks. Rather, it will be worse than even this year. It’s overdue now for the public to conduct their own political intervention and cease the total mismanagement of the country by the government and its international creditors.

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