Portugal is no longer a problem for Europe
The economy is experiencing a golden moment thanks to exports and tourism after cleaning up its accounts. But the country has paid a price in migration of qualified workers and reduction of public services
Ten years after the departure of the “men in black” — the international managers of the European Commission, International Monetary Fund and European Central Bank who cleaned up Portugal’s accounts with a machete, the country has emerged as the most diligent student in southern Europe. In 2023, for the first time, public debt fell below 100% of GDP (it stood at 98.7%) and there was a historically high budget surplus, the highest achieved since the fall of the dictatorship in 1974.
Portugal and Ireland are the only members of the former club of the reviled PIGS (Portugal, Italy, Ireland, Greece and Spain) that have managed to bring their public debt below pre-Great Recession levels. The Portuguese economy is experiencing a golden moment thanks to exports, with tourism also breaking records: 2023 was the best year in history, with more than 30 million visitors and €25 billion ($24.8 billion) in revenue. Unemployment remains at low levels, with a rate of 6.5% in March. And inflation has shrunk faster than in countries such as Germany, France, the Netherlands, Spain or Greece, and now stands at 2.29%. On the other hand, the country is suffering from a serious housing crisis, with skyrocketing prices that are out of reach for the low salaries in Portugal, where the average monthly wage in 2023 was €1,505 ($1,620) compared to €2,128 ($2,290) in Spain.
International agencies saved the country from bankruptcy with a bailout of €78 billion ($84 billion) (the third aid package requested in a half century of democracy), but they demanded austerity measures that ruined the lives of many people who lost their homes and jobs. In the three years of the adjustment program (2011-14), more than 330,000 jobs were destroyed and 90,000 companies disappeared. Unemployment skyrocketed among young people and reached 42%. The only way out that many Portuguese found was the old, familiar path of emigration. The difference was that during the dictatorship, mostly unqualified workers left the country; in the 21st century, the emigrants were mostly university graduates and qualified professionals. The losses are in many cases irreversible for the country that had trained them, and it has led to a demographic earthquake that conditions the economy and society of the present.
Between 2008 and 2015, one million people left the country, according to Pedro Góis, a sociologist at the University of Coimbra. The number of departures between 2011 and 2021 was as extreme as that of the 1960s. Back then, the population fell by 2.54%; now it has retreated by 2.1%. The impact is clear: Portugal is the third country in the world with the highest rate of population aging.
In addition to this legacy to Portugal’s demographics, the troika left things only half done when it left in 2014. Teachers still do not have all their years of service recognized, and government employees still carry over restrictions imposed in those days. After coming to power in 2015 thanks to a no-confidence vote supported by the entire left, Socialist Prime Minister António Costa reversed some of the cruder measures imposed during the days of austerity such as pension cuts, salary curbs and other suppressed rights.
However, in his almost nine years of administration, Costa was also noted for his desire to contain public spending and always maintain “as contas certas” (balanced accounts) and comply with European demands. During his successive governments there was tight budget control to combat debt and deficit, a goal that reinforced the power of the Finance Ministry, which each year withheld expenditure items granted to other ministries. This centralized control has only disappeared this year.
This budgetary rigor, which was only broken during the Covid pandemic to face extraordinary expenses during the health emergency, has improved the image of the country, which is now highly valued by international rating agencies and EU institutions. But “the obsession with budget surpluses,” in the words of André Freire, a political scientist at the University Institute of Lisbon, “has eroded the purchasing power of the middle classes and the quality of public services,” he wrote in an article in the newspaper Público. In the last two years there have been constant protests against the deterioration of healthcare and education, as well as complaints about the lack of public investments, which government leaders are now hoping to compensate for with EU Next Generation funds.
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