The Failure of Austerity Policies in Portugal Might Lead to a Change in Government
Summer in Portugal means beach vacations for foreigners along the Algarve; but for ordinary Portuguese in a time of 18% unemployment (and a rate more than double that for young people), their choice in summer is low-paying seasonal work or surviving on dwindling unemployment benefits.
Portugal, considered to be the best student of austerity economics in Western Europe, has seen little economic benefit from the budget cuts and tax hikes of Prime Minister Pedro Passos Coelho and Finance Minister Vítor Gaspar. Protesting the effects of a budget that even The Economist described as "more pain, less gain," Portugal's two largest trade unions brought transport to a halt across the country on June 27 in a general strike.
Facing these poor results and public opposition, Finance Minister Gaspar—considered the architect of Portuguese austerity—suddenly resigned last week. Amid the failures to meet fiscal targets, blockages of portions of his budgets by the Constitutional Court, and perceiving "significant erosion" of public support, Gaspar felt compelled to leave the government. His resignation was followed by that of Foreign Minister Paulo Portas, head of the Christian Democratic CDS-PP, the junior governing coalition partner to PM Coelho's center-right Social Democratic Party.
These resignations have added economic uncertainty to Portugal's economy to accompany the political uncertainty, as bond yields and stocks fell after their announcements. Despite Coelho's public refusal to quit as well, Portugal's President Aníbal Cavaco Silva is meeting with the country's political parties beginning today as he decides whether or not to dissolve parliament and call snap elections. Recent polling indicates that if an election were called, the center-left Socialist Party (PS) and other left-wing parties would capture a majority of seats. If they formed a coalition together, they would likely try to negotiate the terms of the bailout, a platform of the PS's likely partners in government, the Communist Party (PCE) and the Left Bloc (BE).
Though the situation remains chaotic and the next steps for Portugal are unclear, there are some hopeful signs. The resignation of Vítor Gaspar demonstrates that even the most dedicated pro-austerity economists can resign in the face of austerity's dismal results and the public opposition they provoke. The limited effectiveness of public protest in moderating austerity policies and ameliorating their effects thus far could finally achieve success if Portugal goes back to the ballot boxes. If a coalition government emerges, in all likelihood the Troika (International Monetary Fund, European Central Bank, and European Commission) would be forced back to the table to renegotiate the terms of Portugal's bailout, possibly shifting toward a strategy based on economic growth. The good student of austerity may instead become a teacher of democratic accountability and alternatives to austerity after all.
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