Portugal and austerity: what European model?

In today’s blog post, Roberto Falanga and Simone Tulumello describe the trajectory of Portuguese austerity politics, from the post-crash bailout. Portugal is often held up as an example of anti-austerity politics, especially by the left in other countries. Roberto and Simone argue while it is correct that the left coalition is reverting austerity policies, it does so under contradictory conditions that call for a broader rethinking of the European model if the approach taken until now is to be sustainable.

The Memorandum of Understanding for the 3-year economic adjustment programme in Portugal was signed in May 2011 under the supervision of the International Monetary Fund, European Commission, and European Central Bank (the so-called Troika). The bailout package of 78€ million provided to the country was agreed by the three mainstream parties – the majority made up of the Social Democratic and Popular parties, and the Socialist party in the minority – to consolidate domestic finances and improve international competitiveness against the increasing vulnerability of the country to the effects of the global crisis.

Preceded by preliminary rounds of austerity (the Programmes of Stability and Growth, Programas de Estabilidade e Crescimento) imposed by the European Union to the socialist government led by José Socrates, the intervention of the Troika between 2011 and 2014 imposed significant pro-cyclical fiscal consolidation measures (like in Ireland, Greece, Cyprus, and Spain, where similar Memoranda were signed in the same period). At the local level, for instance, fiscal retrenchment entailed a reduction of administrative units, state grants (about 60% of local revenue), municipal staff, municipally-owned enterprises, while decreasing local debt and enhancing new mechanisms for risk management control, reporting and monitoring (Teles, 2016).

Against the negative effects of the austerity measures on social, economic and political life (economic recession, increasing unemployment, impoverishment of large sectors of civil society, emigration of young and high-skill generation, private housing speculation, etc.), protests and social mobilisation erupted in the peak of the crisis between 2011 and 2012. Labour unions and political parties at the end of the left spectrum tended to support movements (e.g. ‘Indignados’, ‘Que se lixe a Troika’, etc.) and civic networks (e.g. the ‘Congresso Democrático das Alternativas’ composed of people from trade unions, left-wing parties, academics and social movements). In this period, public interest over large payroll tax increases – and more broadly austerity measures – grew and key institutional actors like the Constitutional Court directly challenged the government and pushed the suspension of austerity measures, like Labour Code amendments.

Portuguese mobilisation spread after decades of low participation in political life and within a global scenario in motion, with the ‘Arab Spring’ and the Spanish occupations in Madrid rising interest and concern worldwide. This notwithstanding, when compared to countries like Spain and Greece, protests, occupations and strikes in Portugal attracted less public than expected and did not produce new ‘anti-system’ groups. According to Caldas (2012), this was due to an increasing alienation from politics and representatives, perceived as corrupt and dishonest, which exacerbated historical trends of disaffection with political institutions and representatives (De Sousa et al., 2014). Moury and Standring (2017) explain that alienation of grassroots movements and self-organised groups was the result of the government attitude against social partners and professional bodies, placed before austerity as a fait accompli.

The reasons behind the growing mistrust towards the political class, as well as towards protests at occasion perceived as controlled by labour unions and political parties (Observatory for the Quality of Democracy report 2012), should be searched in the way the adjustment programme was implemented. Disaffection in civil society was coupled by discontent among business sectors (for instance, due to the rise of the valued added tax), and within party ranks of both government coalition and opposition. The major mainstream party at the opposition, the Socialist party, decided to stop supporting the government in 2012 by voting against amendments to the 2012 budget and the 2013 budget, in a time when pools on voting intentions gave it an edge over the centre-right coalition (De Giorgi et al., 2015).

Despite the attempts to persuade society on the need of austerity through the TINA (‘There Is No Alternative’) rhetoric and blame shifting communication strategy on previous administrations (Fonseca and Ferreira, 2015), confidence on government dropped-off. Alienation from the political sphere reached the highest abstention rates since 1979 in the 2013 local elections (47.4 %; preceded by 41.9% in 2011 and followed by 44.1% of abstention in 2015 in legislative elections). Noticeably, abstention resulted positively associated to lower socioeconomic resources and educational skills, furthering the exclusion of the most vulnerable groups from public decision (OECD, 2015).

It is worth noting that the blurring borders between institutional and non-institutional spheres have always characterised political life in the country. If compared to neighbouring countries social mobilisation was weaker, this may have been compensated by easier transfer of ideas and instances between movements and parties, as the same actors often played multiple roles. As a result, in contrast to the growth of anti-system groups, like in Spain and Greece, political parties tended to incorporate social claims, taking ahead political strategies that eventually prepared the field for the ‘Geringonça’ to be in power from 2015.

The term Geringonça means something with an unstable structure (and few chances to be durable in time), and is informally used to describe the coalition between the Socialist, the Communist, and the Left Block parties that is currently governing the country. The coalition, emerged from the initial impasse for the formation of the national government after the legislative elections in 2015, has a peculiar character: the left-wing parties do not take part in the government, but form, together with the governing Socialist party, the parliamentary majority. This situation has brought the parliament back into the core of political action, in that every governmental proposal needs to go through the negotiation with the Communist and Left Block parties – and in some cases with the centre-right parties, in the name of ‘large agreements’ and ‘stability’.

Amid the deep recessionary effects of the austerity policies, the dismantling of the welfare regime, the crisis of corporatist traditions and the interruption of secular trends of greater equality and inclusion, the new majority declared its intention to reverse the austerity agenda implemented between 2011 and 2014 – though with significant contradictions. The priority has been restoring the purchasing power of workers and civil servants – for instance, by reversing the tax increases and the extension of the work week from 35 to 40 hours put in place by the previous government. Though some economists and experts have been criticising these measures,[1] 2016 and 2017 have seen a fast economic growth, giving the government the possibility to keep up with the expansionary agenda as well as maintaining good financial fundamentals.[2]

However, some fundamental contradictions persist. On the one hand, the economic growth is based on exportations and, expressively, the boom of tourism, and doubts persist on its sustainability in the long run. On the other hand, amid the Socialist will to not break up with European conditionality, the investment in purchasing power has meant that virtually no action has been put in place so far to revert the dismantling of the welfare state of the previous years – the national health system, housing policy and public transport are possibly the fields where austerity hit the hardest. While ongoing discussions for the 2018 budget seem to signal a renewed attention to the welfare state, particularly in the field of health[3] and housing (a ‘New Generation of Housing Policies is ongoing public discussion), it seems to us that the potential for consolidating a different path to development lies exactly in the engagement with the contradictions we highlighted, which is quite unlikely in absence of a more general rethinking of European institutions and mainstreams.

While many in Europe are pointing at Portugal as the evidence that the austerity (and neoliberal) hegemony may start their path to decline, we believe Portuguese successes and contradictions point toward the need for a deeper questioning of the European model of development.

Roberto Falanga and Simone Tulumello, are Postdoctoral Research Fellows, at the Instituto de Ciências Sociais, Universidade de Lisboa

[1] The Post-Programme of Surveillance initiated in May 2014 in order to monitor economic, fiscal and financial policies in Portugal stress spread weakness in labour market, public administration, and judicial system inter alia. The programme also critically observes the reverse of some previous reforms, as the return to the 35 hours working week in civil service; the increase of public employment via new hiring policies; the reduction of VAT for food at restaurants; backtracking in reforming state-owned enterprises and concessions negatively affecting the capacity to attract foreign direct investment.

[2] The Ministry of Finances, Mario Centeno, has even been included among the potential leaders of the Eurogroup.

[3] See http://expresso.sapo.pt/sociedade/2017-10-14-Orcamento-para-a-saude-aumenta-44.

This entry was posted in Crises Resistance and Alternatives and tagged , , , . Bookmark the permalink.