Portugal seems to be taking austerity steps in the right direction but it is does not have cause to celebrate yet. That was the European Commission’s opinion after an assessment by the EU, European Central Bank and International Monetary Fund troika at the end of February. It said Lisbon could return to the markets to finance all of its needs by 2014. The bailout given it last year will come to an end by then.
The total bailout support is 78 billion euros. Lisbon has already received more than 48 billion of that, and a fourth slice worth nearly 15 billion euros has just been released.
To get this, the Portuguese centre-right government led by Pedro Passos Coelho had to make difficult structural reforms, the most recent being to the country’s work sector. Bank holidays were cut down, paid holidays were shortened and it was made less costly to sack people. These cuts to the budget were the equivalent of 7.5 percent of the national income.
That brought the deficit down to a projected 4.2 percent of GDP this year, though the Commission is forecasting the debt next year to be 115 percent of GDP.
The backlash is this means Portugal is still in the grip of recession. The economic tourniquet tightened at the end of last year, draining a little more blood out of Portuguese economic arteries.
2012 is looking at a 3.25 percent drop in national income and unemployment that was at 15 percent in February is set to get worse.
This and social nausea remain the government’s biggest headaches. An economist suggested that administering the medicine should have begun earlier.
Joao Cesar das Neves said: “Well, we took a long time, it was very stupid. Spain, for instance, next door, which has a bigger problem, started much earlier than we did. That’s why they avoided many of the problems that we had. They started in 2009. We only started in 2011. That’s the big error that we now inherit.”
The result is poverty eating into the middle class. One food bank in Lisbon is feeding around 300,000 people. More are expected to get thinner.