Greek crisis opens Portuguese faultlines over future of eurozone

In the short article “Ides of March,” we referred to Portugal, Spain, Italy, and France as likely to experience political pressure to seek relief from the severe austerity imposed on them. In the attached Financial Times article, one notes that Portugal, considered a staunchly fiscally conservative country is likely to elect a Socialist led government in the next election. In the past, Portugal has a history of Socialist, and even, Communist leadership. Without fiscal relief, history may well repeat itself.  

Asher Edelman

Greek crisis opens Portuguese faultlines over future of eurozone

by Peter Wise, Lisbon

No European leader has poured more scorn on the radical aspirations of the Syriza-led government in Athens than the prime minister of Portugal .

Pedro Passos Coelho has dismissed Syriza’s bid to rewrite the rules on debt repayment and bailout conditions as a “fairytale” and is sternly opposed to any relaxation of Greece’s reform programme or debt liabilities. But his tough stance is under attack at home — with the criticism exposing the deep divide in Portuguese society over the future of the eurozone.

Critics say Mr Passos Coelho’s stance is obstructing an opportunity to reach a “new deal” in Europe that could ease austerity and provide debt relief for Portugal, Spain and Ireland as well as Greece.

In an open letter published last week, a cross-party group of politicians, economists and scientists urged Mr Passos Coelho to revise his position and not to support a “punitive” approach towards Greece.

The 32 signatories include well-known figures from the two parties that support the ruling centre-right coalition as well as leaders of the opposition Socialists, who are leading in opinion polls ahead of Portugal’s general election in autumn.

“Faced with Greece’s grave social crisis, the Lisbon government insists that austerity should continue as before,” the letter says. Instead, to avert a “protracted recession” across the eurozone, the signatories call on Mr Passos Coelho to press for “solidarity and convergence” rather than the “humiliation of member states”.

“If it depended on Lisbon, Greece would have to agree to comply unconditionally with its current adjustment programme or leave the euro,” Público, an influential daily newspaper said in an editorial. “Neither of these options is in the best interests of Portugal, the weakest eurozone country after Greece.”

In contrast to Syriza’s radical challenge to how eurozone bailouts should work, Mr Passos Coelho, leader of Portugal’s centre-right Social Democrats, personifies the orthodox approach of tackling sovereign debt problems with austerity measures and painful structural reforms to win back the confidence of financial markets.

After exiting a three-year €78bn bailout programme in May, Portugal has successfully returned to the international debt market, borrowing at record low rates in recent weeks, selling its first 30-year bond and last week announcing it would make an early repayment of €14bn in bailout loans from the International Monetary Fund. The economy grew 0.9 per cent in 2014, the first full year of growth since 2010.

Mr Passos Coelho’s message is that the conventional response to the crisis works. “If Portugal, Ireland and Spain had not stuck to their adjustment programmes, other countries would feel justified in cutting taxes, raising wages and increasing deficits to any level they pleased,” he said recently. “If the rules are not kept, there will be no euro and no European Union.”


Often praised by German ministers, Mr Passos Coelho aligns himself in the eurozone tussle over what to do about Greece as the leader of a country that has strengthened its struggling economy by swallowing the bitter pill of austerity and reform and who is loath to endorse any agreement that would excuse Greece from similar commitments.

“In relative terms, no other country had done more to help Greece than Portugal,” Mr Passos Coelho said in response to the letter appealing for a more forgiving stance. His claim, based on a €1.1bn contribution to Greece’s bailout loans, is challenged by economists.

But in essence, as Luís Marques Guedes, a government minister, put it recently, Lisbon sees the difference between Portugal and Greece as that between the hardworking ant and the grasshopper who failed to plan for tough times in Aesop’s fable.


Mr Passos Coelho has been doggedly unwavering in his commitment to Portugal’s bailout programme over the past four years. But the opposition Socialists, who negotiated the agreement before losing a general election in June 2011, have radically altered their position.

António Costa, the Socialist leader, mayor of Lisbon and, according to opinion polls, the man most likely to become Portugal’s next prime minister, describes the bailout as an abject failure that has produced nothing but poverty.

Over the past three years, the government’s misplaced faith that austerity would generate growth has resulted only in deflation and high unemployment, he says, arguing that current levels of debt servicing leave no money available for public investment to kick-start the economy.

The Socialists do not follow Syriza in advocating any write-off of Portugal’s public debt, estimated to reach almost 126 per cent of gross domestic product this year, but say they would seek better terms as part of a wider European agreement.

“Isolating and demonising Greece is a mistaken and dangerous idea,” says Mr Costa. “This is a European, not just a Greek problem, and the first response has to be to deal with the situations of social catastrophe that exist in countries like Greece and Portugal and Spain.” – as published on on Feb. 16, 2015.


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