Home > EMU Crisis, Fiscal Policy > The Commission on Portugal: Is This for Real?

The Commission on Portugal: Is This for Real?

A quick note on Portugal. Let’s start from three facts:

  • Austerity did not work. Portugal is in a recessionary cycle. The economy will shrink by 2.3 per cent this year, more than twice as much as the previous government forecast (and the slowdown of exports to the rest of the eurozone, is not helping).
  • Austerity is self defeating: the deficit-to-GDP ratio widened from 4.4 per cent in 2011 to 6.4 per cent last year, and is forecasted to be 5.5 per cent in 2013. Far above the target of 3 per cent that the government had agreed with the Troika. My guess is that it will be even larger than that.
  • The magic wand of confidence is not magic. The budgetary cuts did not boost private spending, and expectations remain gloomy. The Financial Times article cites the Portuguese daily Público writing “Portugal has entered a recessionary cycle. People have no reason to believe the future will be any better. The [adjustment] programme has failed and has to be changed.” So long for the confidence fairy…

Is this surprising? Not at all. Austerity is likely to be recessionary and self-defeating, when a number of conditions are met. (a) Monetary policy is at the zero lower bound, and cannot compensate the recessionary effects of budget cuts with interest rate reductions. (b) Trading partners are also in a slump (and/or they are also implementing austerity measures), and hence exports can not substitute for decreased domestic demand. (c) The private sector is deleveraging, and subject to a credit crunch. This is pretty much a description of the current situation in the eurozone. Can anybody not blinded by ideological faith in expansionary fiscal contractions, believe that austerity today is not self-defeating? And yet, today we were  given the opportunity to read the  statement by the European Commission on Portugal. It is so incredible that it is worth reproducing it in its entirety:

The European Commission welcomes that, following the decision of the Portuguese Constitutional Court on the 2013 state budget, the Portuguese Government has confirmed its commitment to the adjustment programme, including its fiscal targets and timeline. Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens, namely the growing investor confidence in Portugal, and prolong the difficulties from the adjustment.

The Commission therefore trusts that the Portuguese Government will swiftly identify the measures necessary to adapt the 2013 budget in a way that respects the revised fiscal target as requested by the Portuguese Government and supported by the Troika in the 7th review of the programme.

Continued and determined implementation of the programme offers the best way to restore sustainable economic growth and to improve employment opportunities in Portugal. At the same time, it is a precondition for a decision on the lengthening of the maturities of the financial assistance to Portugal, which would facilitate Portugal’s return to the financial markets and the attainment of the programme’s objectives. The Commission supports that such a decision be taken soon.

The Commission will continue to work constructively with the Portuguese authorities within the parameters agreed to alleviate the social consequences of the crisis.

The Commission reiterates that a strong consensus around the programme will contribute to its successful implementation. In this respect, it is essential that Portugal’s key political institutions are united in their support.

To summarize, the Commission is happy that the Portuguese government chose to ignore a ruling of its constitutional court (“welcomes that…”); it threatens to cut funding if the Portuguese government does not follow its prescriptions (“it is a precondition for a decision…”); it is in a state of denial on confidence (“the growing investor confidence…”); it recommends that democratic discussion does not take place (“it is essential that key political institutions are united in their support…”)

This goes beyond my wildest thoughts. I checked, and nobody moved April fool’s day to April 7th. This is for real, and it needs no additional commenting…

  1. bostonboomer
    April 8, 2013 at 7:16 pm


  2. Energia
    April 8, 2013 at 8:54 pm

    It’s as if the Commission doesn’t even try anymore. They just go through the motions of putting together the appropriate-sounding words, no matter how hollow and discredited. On the other hand, if those are still the words of true believers then the Euro is doomed.

    That said, the Portuguese government did say it would respect the court’s ruling and seek savings elsewhere. That’s what the commission is applauding, that the government will apply the motor saw to other government outlays instead.

  3. April 8, 2013 at 11:07 pm

    You can get your revenge by voting for one of the candidates for the ‘Creditanstalt’ Heinrich Brüning Memorial Prize for Self-Defeating Macroeconomic Stabilization Policy at http://silverberg-on-meltdown-economics.blogspot.co.at/2013/03/announcing-creditanstalt-heinrich.html.

    This will be awarded on May 11 in Vienna, the anniversary of the 1931 Creditanstalt bank failure that plunged the world into the deepest depths of the Great Depression.

  4. Phoenix Theophrati
    April 9, 2013 at 9:21 am

    It sounds all so Greek to me. Soon the lyrics wil be : It is not the program but the Portuguese implemantation that is disastrous.

  5. Pedro Cid
    April 9, 2013 at 3:24 pm

    Obviously, they are in complete connivance with the Portuguese Government in destroying the Country’s Economy. Obviously there are not in the least worried that Portugal is a Sovereign country with a Constitution which, last time I checked, wasn’t suspended (yet). Funny how countries are treated so differently. When it’s the German Federal Court, they bow to their decisions, if it comes from Portugal, well who cares if it’s a democracy? Just suspend the constitution and implement those measures so the Portuguese can die faster. Everything sounds so Hitlerian to me (sorry to the Germans but it DOES), that it is quite horrible. What they are doing is blatant racism. If in the depression which occurred before WWII they found their culprits in the Jewish, in this depression, the choice has been made long ago – Southern Europeans. It’s horrible, a very sad world.

    • April 10, 2013 at 3:28 pm

      We need a government that is first and foremost at the service of the Portuguese interests, instead of international banks (ex) employees. We need a 21st century “Vasco da Gama”, who has the courage to do away with a state-dependent-corrupt economy, the real cause of the Portuguese “crisis,” according to Prof. Paulo Morais, Vice-President of Transparency and Integrity Association in Portugal.

  6. caiman
    April 9, 2013 at 3:45 pm

    The funniest (or scariest) part of this, is that the president of the European Commission is also Portuguese.

  7. Jabreu
    April 9, 2013 at 4:56 pm

    Even more scariest is that he is viewed as one potential contender for the next presidential election in Portugal.

  1. April 8, 2013 at 7:41 pm
  2. April 8, 2013 at 8:24 pm
  3. April 8, 2013 at 9:35 pm
  4. April 9, 2013 at 11:20 am
  5. April 9, 2013 at 11:24 am
  6. April 9, 2013 at 12:01 pm
  7. April 9, 2013 at 12:40 pm
  8. April 9, 2013 at 12:51 pm
  9. April 9, 2013 at 6:21 pm
  10. April 9, 2013 at 10:14 pm
  11. October 18, 2013 at 11:10 am
  12. June 8, 2014 at 12:25 pm
  13. June 8, 2014 at 1:35 pm
  14. September 30, 2014 at 6:23 pm
  15. June 24, 2016 at 10:02 pm
  16. July 2, 2016 at 1:04 pm
  17. November 10, 2016 at 6:49 pm
  18. November 10, 2016 at 7:05 pm
  19. November 10, 2016 at 8:23 pm

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