Austerity angst in Portugal

Austerity angst in Portugal
By Euronews
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Portugal’s coalition government is unravelling after Paulo Portas, the leader of the CDS-PP party resigned as foreign minister.

He quit in protest at the replacement for the Finance Minister Vitor Gaspar, the architect of Portugal’s spending cuts and tax hikes who stepped down on Tuesday.

If Portas pulls his party out of the coalition, the government will not have a majority and may have to call an election.

The crisis puts at risk Portugal’s orderly exit from its bailout and has wider implications for the survival of the euro.

Behind all this is the growing anger over the crippling austerity measures required by the EU, International Monetary Fund and the IMF in return for stopping Portugal from going bankrupt.

Euronews spoke to Professor Pedro Lains, an expert in Portugal’s economy, from the Institute of Social Sciences at Lisbon University.”

Patricia Cardoso, euronews: “What happens now with the baillout programme?”

Professor Pedro Lains: “That depends on what the European institutions do about the problem. If the European Central Bank doesn’t change its position, and the same with the European Commission, etc, if the German government don’t change its position, if Portugal doesn’t get support from the southern European countries, there are going to big problems and we will reach a time when [Portugal] leaving the euro will benefit the country more than it will cost it. We haven’t reached that time yet.”

euronews “You spoke about a change in the European position, but is that possible with elections due in Germany in September?”

Lains: “I think so, because there have been changes in the past, we’ve seen that several times during the history of European integration, that changes have been made before elections if the voters ask governments for those changes. If a government wants to be re-elected, it makes changes.

“Here in Portugal, we don’t know what the German voters are thinking, but there must be policy changes in Germany and other European institutions (the ECB, etc). It’s absolutely necessary because if there are not those changes, Portugal will simply leave the euro, and no-one in the north wants Portugal to leave the euro.

euronews “Is there a danger of social and financial collapse in Portugal?”

Lains: “A financial collapse – yes, with big losses to the creditors. The European institutions have to take this into account. The losses suffered by the creditors will be bigger than the cost to the Portuguese economy. All this austerity should not have happened, and that has to be changed, and they have the means to change that. The problem is not economic, it’s not financial, it’s political – in Europe and in Portugal.”

euronews “So is this going to be a ‘hot’ [a difficult] summer, one year after the head of the ECB managed to calm the markets?”

Lains: “Not necessarily a hot summer, but it’s going to be a painful period unless there are decisions taken at the European level to bring about a political solution in Portugal.”

euronews “And what would those European solutions be?”

Lains: “We shouldn’t forget that the previous government – and this is their major responsibility – negotiated with the troika a third austerity package of 4.7 billion euros. That’s as big as the two previous austerity programmes, which failed. And the representatives of the European institutions and the troika agreed to that.

“We have to soften the austerity. We need to have financial control, budgetary rigor, and so on, everybody knows that. We do need all that, but we must end the excessive austerity. And now I think that it is good for the European institutions to have had this warning from Portugal, it’s a wake-up call for them. So that finally we can reach a better consensus – that the excessive austerity is the problem.”

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