From labor unions, politicians and academics has arisen the question whether reliance on merciless welfare cutbacks and expensive tax hikes is really the best recipe for pulling Portugal and the rest of Europe out of its debt crisis.
Led by Germany, European Union governments have continued to proclaim that budget discipline is the first step to renewed prosperity. But across the continent, doubt has grown as it becomes clear that austerity measures are also smothering hopes of an early return to economic growth, without which the goal of paring down debt levels seems out of reach.
Emaciated economies, particularly in southern Europe but also infecting the better-off northern tier, have led to a slowdown in business activity across the board, with no end in sight. In many cases, this has produced not only painfully high unemployment but also a slump in tax revenue that is desperately needed to balance budgets and pay off long-accumulated debts that caused the crisis in the first place.
“The recipe is not working,” said Pedro Marques, a Socialist member of the Portuguese parliament who specializes in economic and social affairs.
Nowhere has the question arisen with more acuity than here. In the year and a half since Portugal signed an austerity-oriented bailout deal with the European Union, the European Central Bank and the International Monetary Fund, not only has the country fallen into recession but government debt has also increased: from 93 percent of gross domestic product in 2011 to 118 percent this year and a forecast of 122 percent in 2013.
“We need to reverse this vicious circle,” said Armenio Carlos, head of Portugal’s largest labor union, the leftist General Confederation of Portuguese Workers. “What we need to do is grow the economy.”
Nevertheless, a troika of inspectors from the three lender institutions this week approved a sixth bailout payment, for $3.2 billion, in exchange for proof from Prime Minister Pedro Passos Coelho’s government that prescribed austerity measures were being carried out as promised. Passos Coelho’s finance minister, Vitor Gaspar, expressed satisfaction at the international seal of approval and vowed the reforms will continue even though they are not producing results as fast as expected.
“Nobody is happy about this except Vitor Gaspar,” complained Pedro Tadeu in a column the next day in the independent Diario de Noticias newspaper. “It is sadism? Is it masochism? How can we explain this blindness?”
Despite the hand-in-hand approach by Socialists and Passos Coelho’s Social Democrats, resentment had been building for months over high unemployment and welfare cutbacks. It burst into the open in September when the government announced a sharp reduction in payroll taxes on businesses as a way to improve competitiveness — and a corresponding rise in value-added taxes to pay for it.
Paulo Mota Pinto, a Social Democratic member of parliament and head of the European Affairs Committee, said the government’s decision was a good idea but acknowledged that it was “badly explained, badly perceived.”
“People saw it as a transfer of money from the poor to the business owners,” Mota Pinto said.
Largely spontaneous demonstrations broke out Sept. 15 in 30 cities around the country, organized mostly on Facebook and largely catching the political establishment by surprise. They put into the street an estimated 10 percent of Portugal’s 10.7 million inhabitants, the largest such outpouring since the overthrow of the Salazar dictatorship in 1974. Other, smaller protests have continued since then, including the Nov. 14 clashes that left the creamy stone steps of parliament stained with red and green paint.
The explosion of popular resentment was the signal for the Socialist Party to break with Passos Coelho’s commitment to the troika-imposed austerity program, which its leaders said must be revised to produce growth if Portugal is to climb out of the debt hole. Forgotten was the fact that it was a caretaker Socialist government that signed the package in the first place, in May 2011, just before being voted out of office. Since then its leader, Jose Socrates, has been living in Paris and studying philosophy.
Manuela Correia, a 46-year-old single mother, grew to adulthood during the boom years that followed Portugal’s adhesion to the European Union in 1986. Her family lived comfortably, she attended good schools and she landed a job as an executive secretary with a multinational company in Lisbon, the capital.
But that ended four years ago, when the first round of Europe’s economic crises hit and the multinational headed for greener pastures. Correia was fired and reduced to raising her son on unemployment benefits. In May, the benefits ran out; Manuela’s retired father now splits his $200 pension with her, and they make do, she said, by “stretching everything.”
At the St. Jose parish center run by the Rev. Joao Bras in the middle-class suburb of Algeirao, Correia had come in search of leads for a job. But there was none: no leads, no jobs, no hope. “I answer ads in the newspaper, I go to employment centers, I exchange tips by word of mouth,” she said. “But nothing. There is nothing.”
In the Correia family, she explained, sitting straight and looking her interlocutor in the eyes, people were not brought up in poverty. In her family, she said, people had jobs. They went to the right schools and lived middle-class lives.
“We shouldn’t have to pay for the government debt,” she said, growing more heated. “They wasted the money on a lot of things. If they are out of money, why don’t we ever see ministers take public transportation?”
Then her lips started to tremble. Tears welled up, then streamed down her cheeks. It was unfair, she said, weeping openly and apologizing: “I don’t need anything from the government. I don’t need handouts. I just need to work. Instead I am spending all my father’s savings. And when he gets old, who is going to help him?”
Bras said his parish is full of families in the same situation, but many are prevented by pride from seeking help. “The people who come to me are desperate,” he said.
Managing the middle
Carlos Moedas, the government’s secretary of state for economic reforms, said there is no alternative to the drastic surgery being performed on a government establishment in Lisbon that spent more than it had for a quarter-century as E.U. equalization funds came rolling in.
“We are not doing this for the troika,” he said. “We are doing it for us.”
In that light, the government is looking everywhere for savings. Officials recently suggested that subsidies to political parties — including the ruling Social Democrats — be sliced by 50 percent. Negotiations opened to determine cuts in subsidies to Roman Catholic Church charities.
“We have managed our funds poorly, and we have to pay the price for that,” said Diogo Gomes de Araujo, who directs the Portuguese Development Finance Institution. “This is the big problem of Europe at this moment.”
Portugal is suffering particularly now — and the government is facing stiff criticism — because economic reforms undertaken in recent months to stimulate growth take time to produce their effects, government officials said, while the budget trims and tax increases are felt immediately across the population.
“What you have to manage is the middle time,” Moedas said.
But some Portuguese have begun to discuss whether the Western European welfare state has simply become too expensive for this country — and maybe for others as well. The prime minister said recently that it may be time for a “re-foundation of the welfare state,” which was understood as a suggestion that some benefits long considered inalienable may have to be dropped for good.
“I think it’s time for Europe to rethink the role of the state,” Moedas explained. “ But rethinking does not mean reducing the role. It’s deciding where the state should be more present and when it should be less present.”