Mired in a worsening debt crisis that has claimed Greece and Ireland, Portugal is embarking on the region’s most sweeping societal transformation in a quest to modernize, with success seen as vital to visions of Europe as a united economic powerhouse. In exchange for a $111 billion bailout from the European Union and International Monetary Fund, the national government has vowed to cut waste and improve competitiveness by doing everything from rolling back a cherished culture of job security to reforming archaic laws that force landlords to rent out apartments for as little as $5 a month.
Underscoring the breadth of the changes ahead, Portugal is literally preparing to redraw its map. This country the size of Indiana has more than 4,500 local governments, a constellation of towns and counties that E.U. and IMF officials see as emblematic of the inefficiencies that have plunged Portugal into a debt crisis. A move is underway to significantly reduce the number of local jurisdictions, which could force together some towns divided by centuries of petty rivalries while robbing others of a kind of local access to government that is seen in this whitewashed village of tiled courtyards as being as much a part of Portuguese rural life as a plate of salted cod.
“This is a horrible idea,” proclaimed Araujo, 62, whose town is one of five jurisdictions in the southern county of Grandula, all of which are fearing potential mergers. “This kind of link between the people and their local government in Portugal goes back to ancient times. We understand we are in a crisis. But in this town, we are now afraid of losing an identity that goes back to 1419.”
Economists worldwide are closely watching the attempt to transform Portugal, a seafaring nation of 10.6 million that once commanded a vast empire from Brazil to Macau but is now an example of the single-biggest problem confronting the 17 countries that share the euro: economic divergence.
Adoption of the euro more than a decade ago stabilized hectic interest and inflation rates, giving the Portuguese government — and its people — access to vast sums of cheap cash. Although it gave them the same currency and only slightly higher borrowing rates as Germany — Europe’s hyper-modernized economic engine — the economy here has stayed frozen in time, moribund with one of the region’s lowest productivity rates, and outdated laws and state inefficiencies.
To gain an edge, nations such as Portugal could devalue their currencies. But as a member of the euro, this nation does not have that choice. Instead, if Portugal wants to keep the euro, it must change just about everything else to become more like the successful nations of northern Europe, in the process altering society in profound ways.