terça-feira, 12 de julho de 2016

Economy rains on Portugal’s victory parade

Economy rains on Portugal’s victory parade
Iberian neighbors seek to avoid EU fines, but Lisbon worries go beyond sanctions.

By PAUL AMES 7/11/16, 8:22 PM CET Updated 7/12/16, 8:06 AM CET

LISBON — Amid the joyous multitude swirling around Lisbon after Sunday night’s Euro 2016 triumph, a young man wrapped in red and green was overheard telling friends: “F–k it, this is one night when we won’t worry about our shitty wages.”

The football victory may have also allowed António Costa to push Portugal’s wider economic woes from his mind as he celebrated with the team in Paris.

Any respite for the prime minister will be short lived.

On Tuesday, European Union finance ministers will debate “the absence of effective action” by Portugal and Spain to cut their outsized budget deficits in line with eurozone rules. The outcome of their meeting could lead to the Iberian neighbors facing unprecedented sanctions from the EU.

Although Spain’s economy is over six times larger and its deficit higher, Portugal is the bigger headache for Brussels.
The punishment — potential fines of up to €2.1 billion for Spain and €360 million for Portugal, plus billions in cuts to EU aid funding — could have a major impact in both countries.

In Spain, conservative Prime Minister Mariano Rajoy is in the midst of delicate negotiations to stitch together a government after the second inconclusive general election in six months.

Costa’s minority Socialist government rules with the support of two far-left parties who are demanding resistance to any pressure from Brussels for additional deficit-cutting measures.

“Applying sanctions to Portugal would be inappropriate and unjust … I hope that good sense exists in the Ecofin,” Costa said over the weekend, as he sought to rally support among other EU leaders on the sidelines of the NATO summit in Warsaw.

Although Spain’s economy is over six times larger and its deficit higher, Portugal is the bigger headache for Brussels.

“The only country I am worried about is Portugal, independently of Brexit,” Klaus Regling, head of the European Stability Mechanism (the eurozone’s permanent bailout fund), recently told the German business weekly WirtschaftsWoche. “The government there is rolling back reforms … Portugal is becoming less competitive.”

Spain’s banks are looking relatively healthy. It’s recovering from the housing crisis that almost ruined the economy in 2009 — the stock of unsold new homes was reported back at pre-crisis levels Monday.

Its economy grew at 3.2 percent last year, the fastest of any major eurozone country and more than double anemic Portuguese levels.

“It would make no sense to impose any kind of sanction on Spain,” Economy Minister Luis de Guindos said last week. “Spain has made significant efforts to reduce the deficit. It’s the economy that’s growing the most and which has made the most reforms.”

Promises, no promises

Rajoy has promised the European Commission he will take extra measures to reduce the deficit in the second half of this year, if his conservative Popular Party is able to form a government with a working majority.

Costa on the other hand rejects calls to revise his efforts to “turn the page on austerity” since the Socialists came to power in November.

In a state-of-the-nation address Friday, he told parliament the government would stick to its financial plans “without additional measures, without plan Bs.”

The Portuguese leader has been lobbying European leaders to avoid sanctions or at least have the punishment reduced to a symbolic level. Supporters point out imposing sanctions on a struggling economy makes little sense and risks a political backlash at time of shaky support for Europe.

Costa blames the deficit on the austerity policies of the previous center-right administration, ousted in November. He insists cuts in taxes and healthcare contributions, a rise in the minimum wage, the reversal of pension cuts and other expansionist policies adopted by his government will spur growth and enable the country to meet eurozone deficit reduction targets this year.

His numbers, however, fail to convince everybody in Brussels and Berlin. Growth is slowing, exports are down, the banking system is fragile.

A €3 billion rescue of the troubled Banif bank in December scuppered hopes of bringing the 2015 deficit below the eurozone target of 3 percent of GDP. More public money will likely be needed to prop up other financial institutions. The biggest bank, state-owned Caixa Geral de Depósitos, faces recapitalization needs estimated at over €4 billion.

Schäuble’s warning

Even if Costa succeeds in dodging tough sanctions, concern over the risks in Portugal will remain.

“Beyond the political formalities in the [Ecofin] council, the reality is that Portugal does not have the financial conditions to follow those policies which the government has adopted,” said Helena Garrido, a leading economic commentator and former editor of the Jornal de Negócios business daily. “It does not have the conditions to widen public spending in the way that is being done.”

German Finance Minister Wolfgang Schäuble has warned Portugal could be forced into a painful new bailout program if it doesn’t stick to the eurozone targets.

Yet Costa’s room for maneuver is limited. Even if he was inclined to give the country another dose of austerity, the radical parties on which his government depends for survival are virulently opposed.

Catarina Martins, leader of the Left Bloc, says sanctions would represent a “declaration of war” on Portugal. She’s calling for a referendum on the EU should they be applied — although has carefully avoided calls for a Brexit-style In/Out vote, talking instead of a referendum on the “direction” the EU is taking.

The Portuguese Communist Party has filled Lisbon with posters calling for an end to “submission to the euro.”

Portugal’s Euro 2016 victory party continued into the small hours Monday and revived in the afternoon when crowds packed the streets with a delirious welcome for Cristiano Ronaldo and the rest of team that gave this soccer-loving nation its first major championship win. Unfortunately, the hard economic news won’t make the hangover easier to bear.


Paul Ames  

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