Eurozone crisis: Why Portugal matters

 
Anti-government protest in Lisbon, 2 Jul 13 Lisbon: Tough austerity measures have fuelled anti-government protests

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The political crisis in Portugal sends a signal that the eurozone crisis is not over. The interest rate on Portugal's ten-year bonds edged above 8% today, a reminder of conditions when the crisis was at its most intense.

The government in Lisbon has been zealous in following the Brussels/Berlin script by cutting spending and implementing reforms. Portugal has applied some of the fiercest tax rises and budget cuts. In Brussels it was feted as an example of a country doing everything asked of it

It appears, however, that the austerity drive has reached its limits. Even within the government ministers are having doubts. The recession has shown no sign of ending. Unemployment is at 17.6%. There are 932,000 people without jobs. Thousands of graduates are leaving the country. Last week Portugal endured another general strike.

Portugal has already been granted more time to reach the target for cutting its deficit. Even so the IMF has said its debt levels remain "very fragile". The level of concern could be judged by statements from the European Commission today. It called on Portugal to clarify its situation "as soon as possible". The President of the Commission, Jose Manuel Barroso, warned that the "financial credibility built up by Portugal could be jeopardised by the current political instability. If this happens it would be especially damaging for the Portuguese people..."

The head of the Eurogroup (the eurozone finance ministers), Jeroen Dijsselbloem, said "the situation is worrying. So I'm calling on Portugal to take responsibility."

Germany weighed in, saying it was "confident" Portugal would stick to the reforms. Politicians in Portugal are under enormous pressure to stick with the programme.

Another bailout?

So what is to be done? Portugal will struggle to find political consensus behind continuing with the reforms and cuts. The government might try and persuade Brussels to ease again the terms of its 78bn-euro (£66bn; $101bn) bailout, which was agreed in 2011. That will not be easy.

The prime minister has already warned the Portuguese people to prepare for new sacrifices, to avoid a second bailout. The German Chancellor Angela Merkel, facing an election, may be very reluctant to contemplate a second bailout. It would raise, once again, doubts about the whole strategy.

What this latest crisis underlines is just how difficult it will be for countries like Portugal to exit their bailout programme and regain access to the markets.

It is not, however, just Portugal which remains in crisis. Greece is once again in trouble. The ruling coalition is fragile and the country has only a few days to demonstrate how it can meet the terms of its EU/IMF bailout. The privatisation programme, which was central to it raising funds, is faltering. New problems are emerging in the accounts of the state-run health insurer. The IMF is signalling its alarm. Greece will have to show how it can meet its targets or the IMF may withdraw from the rescue programme. That, in itself, would deepen the crisis.

There are some hopeful signs. Activity in the manufacturing and service sector in much of the eurozone seems to be improving, but very slowly and, all the time, the patience of voters in many of these countries is being tested.

 
Gavin Hewitt, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this
    0

    Comment number 313.

    300.EUprisoner209456731
    Two points:-
    Firstly a significant amount of their exports are within the EU.
    Secondly if the Euro fails then the Germans would revert to the DM. The DM would run at a much higher exchange rate than the Euro hence making their exports more expensive, ergo numbers drop. This is a point all Germany manufacturing is worried about.

  • rate this
    0

    Comment number 312.

    RubenCR@305-308
    Thanks
    Not in pursuit of caricature/scapegoat @311, I would agree "the EU ideal" had something "wonderful" about it: but its "one glitch" was failure to be "based on humans". It was inadvertently, albeit with significant elements of corruption from democratic purpose, 'set to fail' by its neglect of 'human nature', of conduct subject to material conflict of interest not partnership

  • rate this
    0

    Comment number 311.

    #308 RubenRC

    -- How would you rate the standard of living in Portugal before the banking crises with that before EEC entry ?

    -- in 2012 the debt was 123% of GDP, on top of EU subsidies and years of low interest rates

    Are you saying the living standard was far too high for such an economy ?

  • rate this
    0

    Comment number 310.

    #308 RubenCR

    " Portugal and others suffered from bad governments that never considered not having loans or EU funding to cover for the destroyed economy that resulted. Who pays? "

    http://www.theecologist.org/News/news_round_up/453125/eu_subsidies_linked_to_overfishing.html

    http://www.europeanvoice.com/article/2012/october/member-states-reject-attempt-to-scrap-fishing-subsidies/75469.aspx

  • rate this
    0

    Comment number 309.

    #304 Exile

    --what is your bigger picture ?

    #296 was in no was ´Earth shattering´. I´m only attempting to analyze societies --from the mish-mash collected over the years.

    -- traits and mentalities are to be seen --and can often be predicted.

    --its much easier --when one is devoid of (false) Nationalism.

  • rate this
    0

    Comment number 308.

    The EU ideal is wonderful. One glitch: it's based on humans.The big want to get bigger, the smaller can't run. EU imposed blind rules on ALL coutries and failed it's purpose. Portugal and others suffered from bad governments that never considered not having loans or EU funding to cover for the destroyed economy that resulted. Who pays? The people that suffer from unemployment, high tax, no future.

  • rate this
    0

    Comment number 307.

    250. Mould making, tool making for industrial aplication was mostly made in Portugal (I know this because this is my area of expertise). Japanese cars in the 80's had all glass made in Portugal. All of this died when Saint-Gobin bought them and closed production. There was a load of french and german companies buying factories just to close them. Same happened in Spain

  • rate this
    0

    Comment number 306.

    250. margaret howard
    And these 20% were already on top of another 20% imposed 10 years earlier. This made the spanish very happy: they could now sell where never before they did. And the same with every product you can find in the supermarket. The overflow was massive. Copy paste into other primary sector areas and you get the picture. Then with no shipyards a huge chunk of the metallurgy died

  • rate this
    0

    Comment number 305.

    250. margaret howard
    Example:in Y2K the EU imposed that 20% of fishing boats needed decomissioning against further funding. You will find the same in agriculture, live stock, wine in previous years. If you remove this basis from any country, the effect on the remaining industry follows suite, textbook crisis starter. This is but a taste of what EU did to the smaller countries.EU reply was:IMPORT

  • rate this
    +1

    Comment number 304.

    296 quietoaktree
    You are letting your fixation, with what the UK & USA get up to, prevent you seeing the bigger picture. Question is, is it intentional or do you just not see it ?
    With an answer like that, #296, I begin to think you must be in politics !

  • rate this
    0

    Comment number 303.

    @289 So what? The Greeks are changing. That's why their newspaper reports it. The Germans can't change when the should.

    @290 Seems you're having problems. Hope you're OK, but you didn't make much sense there. Unusual for you.

  • rate this
    0

    Comment number 302.

    Why Portugal DOESN'T MATTER: because if the only problem the EU had was Portugal, it would be easily solved. Portugal is only a symptom of a much larger more widespread problem. The cancer is eating away at the entire rotten structure. Portugal is the tip of the iceberg, a indication that something much larger is going very wrong and no one knows how to fix it.

  • rate this
    0

    Comment number 301.

    @266
    "Germany decided to concentrate on quality products and was right.
    You can't have 60m living on a banking and service sector"

    Actually, you can, for a while. You can have a treaty between a few large nations and lots of smaller ones. Some large nations agree to lend money to the small nations, and the small nations agree to buy products with that money from large nations. Or, one of them.

  • rate this
    0

    Comment number 300.

    293.Chris London

    " ...Germany ... Automotive is an excellent example where the majority of vehicles produced are exported. However there are threats to this if the Euro goes"

    I cannot see that since Germany exports large amounts to countries outside the EZ and outside the "EU"

    All you have to do is look at a British car park.

  • rate this
    0

    Comment number 299.

    296, the hypocrisy of Hollande is missed on you then?

  • rate this
    +1

    Comment number 298.

    The more I read about the problems in the Euro countries the more I want to shout GIVE US A REFERENDUM NOW,not in 2017 but NOW.
    If our pro European government and it's opposition allies would only wake up and smell the coffee,we would be out of this European mess before Christmas.

  • rate this
    0

    Comment number 297.

    Greece, Portugal, and Spain are merely the vanguard of a process that will sweep all of Europe. The real question is how will the aftermath be dealt with when the whole EU/Euro/European Project collapses in failure?There don't seem to be any good answers.Nobody seems to be thinking about it because to them it's unthinkable.They'd better start making their plans.Life happens even if they don't.

  • rate this
    +2

    Comment number 296.

    #294 dmr

    "Apparently they have been phone tapping and illegally intercepting French emails."

    --the UK does it legally without asking you.

    --your Schadenfreude and accompanying logic baffles me.

  • rate this
    0

    Comment number 295.

    #293 Chris

    --you misread and totally misunderstood #278.

    -- also my neutral intention.

  • rate this
    +1

    Comment number 294.

    Oh the hypocrisy, Le Monde published a report today on France's secret service. Apparently they have been phone tapping and illegally intercepting French emails.
    I want to see Hollande eat his beret.

 

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