E A Portuguese Lesson For Greece

As Greece moves to a final attempt at a euros 53.5 bn bailout program, it is probably a good idea to recall what occurred here in Portugal when it accepted an austerity program with strict conditions in 2009 from the European Union. The statistical impact was spelled out by Prime Minister Pedro Passos Coelho in a “State of the Nation” speech Wednesday night in Lisbon. Portugal was governed by a center-right coalition which did what the EU ordered it to do.

The price was very high. Having grown its economy toward European levels in the years before the global financial crisis of 2009, afterwards Portugal fell back to where it had begun as a new member back in 1986. Today, the Portuguese standard of living is back to where it started, at 25% below the European average.

Adding to the misery was a huge increase in Portuguese taxes since 2009, to cut the government deficit at Brussels' orders. Direct sales taxes which hit poor people hardest rose by over a third, to cover 75% of the EU bailout funds now paid back, a total of euros 60 billion out of euros 80 billion disbursed. Income taxes rose less sharply, up 11%. The poor were hit hardest. Only now is Portugal beginning to tax the tourism-linked real estate investment business, after foreigners were allowed to rent out their Portuguese holiday homes without paying taxes on the proceeds.

Portuguese gross national product fell 7% against that of the EU as a whole after 2010. The country's standard of living fell back to the level of more than 20 years before.

A symptom of woe was the resumption of Portuguese emigration after 2009. Portugal has the highest proportion in Europe of citizens who migrated to another country—higher than the countries of eastern Europe whose exodus to find jobs or economic opportunities is more widely known. Portugal lost about a half million people since the crisis, bringing its population down to 10.5 million, and falling. There are 5 million identified Portuguese who work or live outside the country, plus another 2 million who exited in the past 6 years with one-way tickets. Workers go to northern Europe, particularly France, and more educated professional people to Brazil where there is a common language.

It is fear of similar suffering that has kept the Greek Syriza led government from signing up for a bailout with similar conditions. A center-right coalition still runs Portugal, but polls show that it may lose its majority if a general election were held today. The respectable Socialists are polling 37.6% vs only 32.7% for the center-right. The less respectable Left Bloc has 6%, but to form a government the Socialists would have to either bring in a centrist party, or open the door to the fast-growing Portuguese Communist party, currently at 11%. The polls are hypothetical and there is no team of tie-motor-cycling hard-left outsiders campaigning in Portugal... yet.

A word of warning about the supposed return of upward movement in the Chinese stock markets which began on Thursday and boosted bourses around the globe, including on Wall St. The all-China index ostensibly rose another 4.5% on Friday. But the statistics are flawed.

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