The Price of “Austerity”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Passos Coelho, who was until Tuesday Prime Minister of Portugal, knew “what to do.” After signing along the dotted line for a €78 billion bailout he embraced the Troika’s austerity agenda with abandon. Public spending was slashed, taxes were hiked, wages were cut, and a whole gamut of public assets and services were privatized.
As they say in Brussels these days, no pain, no gain. After four years of excruciating belt-tightening, Portugal was apparently back on the mend, despite its public debt almost doubling since 2008. Its economy had been through the grinder but it had come out the other end in much leaner shape. The public deficit had shrunk from 11% in 2011 to 3% today.
Unemployment had also fallen, and kept falling month after month, to the point where it was getting monotonous. Until two months ago, that is, when it shot back up over 14%. Then came the bomb shell: the country’s Ministry of Statistics announced in a rare moment of candor that unemployment, in an “extended sense,” was actually around 22%. As Deutsche Welle reports, the Portuguese government had been doctoring the figures to keep the European institutions (i.e. the Troika) happy:
European politicians prefer lower unemployment figures rather than higher ones, and as a consequence, there are now unemployment figures in “narrower” and “extended” senses. Mostly, the headline figures reported are the lower, “narrower” ones.
In other words, in the real world Portugal has almost identical depression-era levels of unemployment as Spain. Its government is just more skilled at masking the grimness of its economic reality.
However, hiding a decidedly grim reality with a flimsy façade of doctored numbers may work on international investors and rating agencies – at least for a while – but it doesn’t work on those who have to live in that grim reality. And at election time that can be a serious setback.
When Coelho’s governing coalition received only 38% of the vote in last month’s elections, the game was as good as up, especially when it became clear that three parties on the left — the so-called “triple left” — had won an absolute majority and seemed willing to form a coalition.
Even when the Portuguese President Cavaco Silva, a former member of Coehlo’s pro-Euro party, reappointed Coehlo as prime-minister in a desperate bid to prevent “anti-European,” “anti-Nato” forces from winning the keys to government, he merely forestalled the inevitable. Today the inevitable happened: the “triple left” roundly rejected Coelho’s policy proposals, forcing Portugal’s Troika-friendly government to resign.
A Messy Business Indeed
The question now is whether or not the “triple left” can form a functional government and if it can, just how “radical” its policy agenda will be. The makeshift leftist alliance includes the Socialist Party (PS), the Left Bloc, and the Communist Party. Though all three parties are more or less on the left side of the political spectrum, they have major ideological and policy differences.
As Business Insider’s Mike Bird reports, on a left-right economic spectrum, few parties are more to the left than the Left Bloc or the Communists, according to the European Union Center of Excellence at Chapel Hill, North Carolina. Of the 268 EU political parties it assesses, the Left Bloc is the eighth-most left-wing party, and the Communists are the fourth-most left-wing. PS is the 122nd-most left-wing, pretty close to the middle of the distribution.
All of which means that things could be about to get very interesting in Portugal, a country that boasts one of the highest total debt levels in Europe (behind Ireland, Denmark and the Netherlands). Before the elections Portugal, like Greece before it, was supposed to be on the road to full recovery; it just needed to keep taking its medicine.
However, if its new government is indeed composed of parties that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as dismantle monetary union and take Portugal out of the euro, as President Silva charged, it’s only a matter of time before the people of Portugal are on the receiving end of some ECB-administered shock treatment.
A Taster of What’s To Come
The problem for the Troika is that Portugal’s growing political instability could be a mere foretaste of what lies in store for the rest of the Iberian Peninsula. On December 20, Spain, the Eurozone’s fourth biggest economy, will vote in what is likely to be its most closely fought general election in decades. If recent polls of voter intentions are any indication, no party will win an absolute majority. It may even be difficult to form a viable coalition government of any kind.
In the meantime relations between Madrid and Catalonia are at their lowest point since Franco’s death, in 1975. Catalonia still has no functional government to speak of, but that hasn’t stopped the pro-independence majority in parliament from voting to separate from Spain in the next 18 months. The central government in Madrid has responded by threatening to cut off financial support to the region as well as ordering Catalonia’s local police to arrest anyone involved in “acts of sedition” against the State, a crime that is punishable with up to 15 years in prison. By Don Quijones, Raging Bull-Shit.
In other words, Spain’s richest region (in absolute terms) is on autopilot and on collision course with the central government, which may also be without government soon, while stilling having to service its massive (and growing) debt, possibly without the help of its richest region. Economic madness. Read… Kamikaze Economics: Spain Threatens to Cut Financial Supply Lines to Its Richest Region
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There is a serious probability that, france, Portugal, and the rest of club med will leave the euro, and probably the EU as a result, unless they are willing to change their ways. With the left in control in Portugal, more theft of, followed by spending of, the wealth of others, and no necessary and desperately needed change, is on the agenda, in another Club Med state.
I think it is the other way around. The Portuguese aren’t taking other people’s money so much as ultra wealthy EU speculators are draining the people of Portugal dry. It has been obvious for years that this can’t go on. The issue isn’t when the EU and the EURO are going down, it’s when. I suspect it will be soon. Once one country gets out from under the control of Brussels, the others will follow like dominoes….
The Euro is not the problem,.
Portugal is still part of socialist, unsustainable, club med, than can not survive in its current SOCALIST ECONOMIC MODEL, with out continuous comp[etative currency devaluation, just like all the other club med states.
The club med states have a stark choice go Austrian, or leave the Euro.
Every time they get close to going Austrian, and entering recovery, the Socialist take power and create another unsustainable credit fueled nightmare.
Blaming Germany and the euro is a “cop out” for an unsustainable socialist economic model. Based on continuous currency devaluation at the expense of the haves in the state.
In the Euro the socialist can not competitively devalue against the other Euro states. So they want Germany to pay their bills for them just like the greek Socialist do.
Yes, I fully agree. The Euro is not the problem. The socialists yes,
they are the problem .
. You cannot solve a debt issue by giving more debt.
KRUGMAN IS a fool, he never considers malinvestment,
fraud corruption, and Entitlement in any of his models.
WHEN IN EURO AND US
Malinvestment + Fraud/Corruption + Entitlement
ARE THE BASIS OF THE MODEL…………………………
The EU EURO IMF whatever you want to call
them indeed ARE THE CAUSE. ( Following Krugman
and US into the hole ).
Banks went in and loaned – to Countries that did
not meet appropriate criteria – but they lent anyway.
The Banks initially made good money, high interest.
When the Banks saw they would not be repaid
EU EURO IMF whatever you want to call the group
Went In And Bailed Out The Banks – they bought the
bonds from the banks.
The EU Then Gave the Countries More Debt to Repay
They should have just let the Countries declare
bankruptcy and let the BANKS take the hit
( yes the BANKS – whether Ireland Greece Portugal
it was all the same, Banks were bailed out ).
Now Just as in US the TAXPAYER the Citizen is on the hook –
The EU Should Never have Bailed Out The Banks
And the EU Should Never have loaned money to those
they knew could NOT POSSIBLY pay back the money.
EG Everyone KNEW Greece was broke
Yet not only did they Lend more money –
They CONTINUE TO LEND Even More Money.
If you give me $ 100. and I spend it foolishly
and cannot pay you back.
And then you give me $ 500. and I give you $ 100
and spend $ 400 foolishly and cannot pay you back.
And then you give me $ 2000 – and I pay you back $ 500 but cannot pay the $ 1,500 – are you the fool
or am I.
. THE DEBT IS GROWING EXPONENTIALLY
Look at US 2008 – 2015 < 9 TRILLION US + 4 TRILLION FED – 13 TRILLION in 8 years ( not including unfunded liabilities which are now estimated at 210 TRILLION ).
blame everybody but the real criminals.
The leftist politicians who make promises they know they can not keep, to evict a government that is doing some of what must be done, so they can keep, lining their pockets at the expense of those who have.
Krugman is a Keynesian, Keynesian are leftist, and the problem.
It’s different in the old world.
In the old world many of our elite are descendents of psychopathic, feudal war lords who got most of their money and land by killing people and stealing their land and wealth.
Most of the land in the UK is still owned by these people and their old money fortunes are still there.
If it wasn’t made this way, it was usually the proceeds of some crime against humanity like slavery and colonialism.
Taking from them seems very reasonable.
Yes they did they were the top of the food chain at the time.
They have been replaced at the top of the table by the robber-baron bureaucrats and politicians.
A nation state is nothing but a big robber-baron enterprise.
Your jealousy and envy is pointing you at the wrong easy target, just as the corporates and bureaucrats want. “Dont look at us, the rich are the problem” And you fall for it, hook line and sinker.
Slavery would never have been possible, without the Arabs and the cooperation of the African tribal chief’s.
To find the root of the problem best you start in a big mirror.
You a claiming justification for your attitude, jealousy, and envy, in acts committed hundreds of years ago by ancestors.
Best check how many thieves and murderers are in you family tree first.
Ultimately you are part of the problem not part of the solution. You would have been a good fellow traveler with stalin, mao, or hitler, you would fit in well with family kim, untill of course you tried to climb on top. None of them solved anything they were a bigger failure than the french red terror. They replaced the descendants of the strong, with scum of the day, and claimed a great change for the people.
The change was from bad to worse.
Probably your are right, but reality is reality.
Portugal, Ireland, Spain and Greece have always exported part of their unemployment. In my view, retaining that migrant worker option would have been a reason to be part of the EU for all of these countries. They will all have to default and leave the Euro because of the unsustainable debt sooner or later. I have not seen any figures on the migrants within Europe from these countries, only the non-european influx. I did see the number of up to 4 million from Portugal alone since the Euro crisis started. That’s a huge chunk of the population if correct.
The answer is no, because South Western Europeans are muppets. They are Goldman’s favorite kind of people.
To find the real culprits look at who is mainly benefiting from the disastrous economic situation. it certainly isn’t the ordinary people. I think it is reprehensible to go around blaming the victims. I also disagree with those who carelessly throw around the word “socialism” without knowing what it really means. Do you actually think that any policy that benefits the people as a whole rather than the rich is “socialism”?