After Greece, what's next for Portugal

#CriticalThinking

Picture of Joaquim Ramos Silva
Joaquim Ramos Silva

Full Professor, Lisbon School of Economics and Management (ISEG), Universidade de Lisboa

SYRIZA’s election victory on January 25 ushered in a new phase in the Greek drama of the past few years.

Many voices in Europe have raised the prospect of contagion to other EU member states, not so much in strict political terms but more in the context of relations inside the eurozone, or the search to find a way out of the crisis through more confrontation and shocks.

The climate of “austerity fatigue’ prevailing in some countries and the impending elections in Spain and Portugal, seemed to give credence to such predictions, even reviving fears that some countries could be forced to abandon the eurozone.

By the end of February, there were signs the new Greek government and its eurozone partners were working towards more ordered and balanced arrangements, taking into account the country’s specific situation with regard to issues like debt and public deficit. Still the course of events in Greece remains uncertain.

In Portugal, many have been asking whether the events in Greece could be replicated here.

To answering that question, we need a quick historical overview.

From the late 1980s when the European Community was running its ‘Cohesion Countries’ policy, up to the beginning of the second decade of the 21st Century when the sovereign debt crisis exploded in the eurozone, Portugal, Greece, Ireland and Spain have been often grouped together, but they have very different characteristics

Of course there are similarities. Geographically they all form part of the European periphery. When they joined, their GDP per capita was below the EU average. Since then however, their political and economic trajectories have differed widely.

Take for example, the EC/ECB/IMF bailouts received by Greece, Ireland and Portugal in 2010-2011. If we look carefully at the reasons behind each case we can see broad differences. This is obvious for Ireland where the crisis was sparked by banking rather than sovereign problems. As far as Greece is concerned, there was not only a very high public debt but also a tremendous fiscal misrule of the state over years. The fiscal position of Portugal was certainly not good, but not so serious as that of Greece. Its problems were exacerbated after the government lost its majority in late 2009 creating the condition for political attacks, which induced a worsening of the financial and sovereign crisis. As the eurozone and the ECB had no clear response to such developments at the time, the country was forced into a bailout in May 2011. Three years later, in June 2014, Portugal left the bailout programme and has re-entered the market.

It is worth noting that Greece has long benefited from a more favourable treatment from Europe. Both countries transited to democracy almost at the same time, but Greece entered into the European Community five years earlier in 1981.

Portugal’s application was held up due to being tied to that of Spain, despite essential differences between the two countries. At the time, Spain was facing friction with France over the Common Agricultural Policy and although Portugal was not a competitor with France in the sector, it faced a much longer negotiation process. Meanwhile, the country suffered two external payment crises in 1978 and 1983. However, support for EC membership was, by far, more significant in Portugal than in Greece, at least among the main political parties.

I will not deny that there are resemblances in the two country’s relations with the EU. Many of the implications of Portugal’s EU integration have not been fully understood, particularly among the country’s elites and that seems to be also the case in Greece. There is a tendency in both countries to attribute the EU with great powers to solve domestic problems, then, if things do not go in the desired direction, they turn ‘Brussels,’ the northern countries, or more simply Germany and its chancellor, into the scapegoats of the situation. This applies not only to populist parties.

In fact, Portugal and Greece have long had serious structural problems in their economies and in the functioning of the state. Clearly, it is abusive to blame other member states, no matter how economically powerful, for such flaws. In Greece and in Portugal, the crisis will only be overcome if the political and economic elites understand the full picture and stop focusing on just one part – the expectation of solidarity no matter what their governments do and the short-term benefits that might bring.

Due account must also be given to the social and political conditions in both countries. Even before the bailout, Greece experienced violent street demonstrations, which worsened into weeks of near continuous riots at the height of the crisis. Nothing comparable happened in Portugal. This difference can perhaps be explained by the memory of the turbulent years that followed the revolution of 1974, when a radical economic policy full of ‘good intentions’ led clearly to bad results.

The Greeks will have to learn that lesson by themselves. Perhaps, the positive side of the recent turn of events in Greece lies in the fact that many of its people, if not the majority, think similarly to SYRIZA. This gives the party, if it understands what is at stake, more scope and authority to implement, the necessary measures to put Greece on the right track – even if they lie outside its programme, which I do not believe will bring real solutions to the country’s problems.

In my view, a monetary union brings benefits to its members but also duties, namely full co-operation with the other members and adaptation to conditions in the global economy. If the general institutional environment of the European Union and the eurozone prevails in medium term, I cannot conceive how the Greek experiment could be replicated in Portugal.

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