Portugal's economy running on empty

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Portugal's economy running on empty

Portugal's economy running on empty
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The Portuguese crisis took a decisive turn when, on March 23 March, the country’s parliament refused to back a fourth austerity plan.

The head of the minority socialist government José Socrates was forced to resign, paving the way for early elections.

A week later President Anibal Cavaco Silva dissolved parliament, and called a general election for June 5.

In under a year the Portuguese have had to digest three austerity plans. Since a general strike last November – the most serious Portugal has known – stoppages have become frequent, especially on public transport.

The scale of the social crisis became clear in mid-March, when tens of thousands of young Portuguese took to the streets. Their protest was largely over their own precarious situation, many in despair at the lack of jobs despite their qualifications.

Unemployment is on the rise – it topped 11% at the end of last year; the country is again in recession according to OECD figures. The austerity measures, including an increase in VAT and cuts in pay, ended up stifling Portugal’s fragile growth – just 1.4% last year.

Portugal has committed itself to slashing its deficit of 8.6% by almost half by the end of 2011 – to 4.6% – and bring it down significantly further over the next two years, to 3% in 2012 and 2% in 2013.

But Lisbon’s pledge has not reassured the markets, which are demanding ever higher rates to buy Portuguese sovereign debt – over 10% for long-term bonds.

Several public transport companies are running out of money; some no longer have enough cash to pay wages beyond June. Portuguese banks, also under pressure, say they can no longer lend to the state.

“We are in a situation in which banks are being damaged, naturally they can’t give more credit to public companies and the state under current conditions,” said Ricardo Espirito Santo, Chief Executive of the Banco Espirito Santo.

Portugal has two significant loans to pay off in the immediate future. On 15th April it must reimburse more than 4.2 billion euros, and in mid-June it will have to find even more money – 4.9 billion euros.

The country ended up by asking for help, but the political uncertainty is already making its impact felt on the June elections. According to opinion polls, no party is likely to obtain a majority large enough to be able to govern on its own.