Portugal has turned the page on its 2010-13 crisis, the International Monetary Fund said in its latest annual assessment of the country’s economy, in which it praised the Portuguese efforts. But Inês Silva, a young woman from Lisbon, is concerned about the impacts of another crash.
Her home country implemented a rigid reform programme and recovered comparatively quickly from the crisis and is today governed by a centre-left government, which prides itself for the success of its anti-austerity policies.
However, the remaining limitations within the social system and the stark increase of prices in Lisbon and Porto continue to put pressure on the cities' residents. With a minimum wage of €677 per month, the rising costs are barely affordable, the European Trade Union Confederation said.
“When we are talking about the crisis, it is always about the past. But the question is if we are prepared for a next crisis,” says Silva, who lives in the Lisbon neighbourhood of Alvalade. For the last 10 years of her life, the euro crisis had been the main focus — in the news, during school lessons, at home.
As a political science student at the Universidade Nova de Lisboa, discussions with her family and her classmates got her interested in the topic, said Silva, walking across the Praça do Comércio — the square at the shore of the Tejo river, once a symbol for the trading power of Portugal. These days have passed long ago.
Already in the years before the crisis hit, the Portuguese economy was struggling with a loss of competition and its high debt. As a result, the country introduced reform packages long before the troika entered the country.
This included cutting the 13th and 14th salaries of public servants as well as freezing their next career steps, which hit Silva’s family hard since her father works in the military’s administration. Her mother’s income was reduced significantly as well, as she is working as a freelance translator for the state. The four-person household often only had around €1200 per month.
Both Silva and her younger sister felt the problems at home. Around the height of the crisis in 2011 and 2012, the two teenagers stopped asking for money for lunch at their school canteen. “We just started to bring sandwiches instead,” Silva recalls.
But things have gone uphill since then: Unemployment, which peaked at 16.18% in 2013, has today fallen to 6.7%. Economic growth also returned: in the first quarter of 2018 it reached 2.1 percent. Additionally, investments have increased by 9% and exports grown by 7.9%.
How did Portugal bounce back?
The ingredients for Portugal’s success story include the adjustment programme as well as the global economy’s recovery and the European Central Bank's low-interest rate policy. In addition, the cautious relief of economic restrictions on the population and the rhetorical repackaging of austerity measures by the government of António Costa have regained consumer confidence.
In a 2011 Eurobarometer study, 44 percent of the respondents in Portugal believed that the country was facing a negative development in the next year, today the proportion has fallen to 23 percent.
Also in the apartment on the 3rd floor of a pink house in the neighbourhood Alvalade, were Silva and her family live, the atmosphere has cheered up. However, she remains cautious about general optimism. She says she is worried when she thinks about TV advertisements by financial institutions for new loans.
Meanwhile, on the boulevard of Rua Augusta, tourist groups push past each other through this central pedestrian area. Large colourful pictures on the menus of restaurants display the offered dishes while bakeries tempt passerby with pastéis de nata — a Portuguese delicacy. The number of tourists has risen from 8.3 million in 2013 to more than 12.7 million in 2017.
The tourism effect
The boom is both a curse and a blessing. On the one hand, tourists bring a lot of money into the country so new jobs are created and investments in real estate surges. Thereby, exports of services have compensated an increase in goods imports. On the other hand, prices rise rapidly. Renting a flat — especially in the city centre of Lisbon — is hardly affordable for the majority of the population.
For Silva, this means that she will keep living with her parents for the next years, at least until she has finished her studies. But Silva is one of the lucky ones, whose families live in Lisbon. For the thousands of young people moving to the capital from other parts of the country each year, finding a place to stay has turned into a nightmare and student housing is rarely available.
Also, the places she and her friends used to spend their free time at became overcrowded and more expensive, like the party neighbourhood Bairro Alto or the area around Intendente. “And there are rumours that the town hall wants to sell the land of one of our favourite viewpoints, Miradouro da Nossa Senhora do Monte, to a hotel,” said Silva.
At the same time, tourism has also created many job opportunities for the population, including students. Silva, for example, started giving free walking tours through the downtown area. However, many jobs in tourism are precarious and don’t offer career possibilities. A country report by the European Commission has recommended increasing incentives to issue permanent contracts.
An integrated financial market, technology and shoes
"2012 was a turning point with the establishment of the ESM and the launch of the Banking Union," says Thomas Wieser, former president of the Eurogroup. In addition, the ECB has expanded its monetary policy, stabilising the expectations of the market.
The big goal now, Wieser said, is to move towards an integrated financial market. An important step has already been taken with the introduction of the single banking supervision. If problems accumulate, supervision no longer looks away, as it is not involved with the interests of the state and the bank. In addition, work should continue on reducing the potential for contagion between states and banks, for example by allowing banks to operate beyond the national borders, Wieser added.
A big challenge regards the search for solutions for the divergence between the eurozone states, says Ricardo Paes Mamede, an economist at the ISCTE University Institute in Lisbon. This happens as the value of the single currency is too low in countries like Germany, which significantly strengthens their competitiveness. In the short term, this cannot be solved - it is about the economic structure of a country: while Germany has specialised in technology, Portugal has long focused on textiles and footwear.
Aiming to better cushion the social costs of a future crisis, proposals call for a common unemployment insurance scheme that can be resorted to in an emergency — but what this could exactly look like is anything but a consensus.
Silva, currently in her final year of undergraduate studies, now thinks about pursuing a master’s degree. She wants to specialise in either migration, anthropology or conflict and peace studies, possibly at a university abroad.
In her home district Alvalade, there is one café next to the other along one of the main avenues, in between small shops. However, many of them stand empty. Although it is a wealthy neighbourhood, many businesses have had to shut down. The debt crisis has changed Alvalade — as well as the rest of the country.
"We missed the opportunity to use the crisis in order to reshape the eurozone," Inês says.
Now it is time to catch up with the remaining work to boost its resilience, she adds.
[Figures initially published in this story relating to the minimum wage, unemployment levels, recent economic growth and percentages in the Eurobarometer study have been corrected and brought up to date.]