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Troika policy in Portugal: a trilogy of austerity, sorrow and social upheaval

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Posted: April 30, 2014 at 19:40   /   by   /   comments (0)

Three years after Portugal was forced to impose austerity and restructural programmes in exchange for a €78bn bailout package, citizens feel the country’s social system is left in shambles. In an effort to balance the Portuguese budget, the government cut spending to wages, pensions, health care and education. Portugal was the third Eurozone country, after Ireland and Greece, to receive emergency funds.

José Silva Peneda, president of Economic and Social Council admits that the Troika policy wasn’t successful

 

 

“It is a mistake to consider the Troika policy as a success,” says José Silva Peneda, former Member of the European Parliament, and the current president of the Social and Economic Council of Portugal (government’s permanent consultative body in the area of economic and social policy.) “If we analyse the programme, I think that the pain and sacrifices were stronger than the results obtained. But when you start the programme like this it is necessary to prepare for pain.” Stronger than the results

Rui Viana Pereira, 62, is a member of the Committee for the Abolition of Portuguese Public Debt (CADPP). He has been unemployed for five years. Two years ago gave up on finding work. He’s gained a reputation for his radical publications about the policy of the government and the Troika and now most newspapers don’t want to hire him. Currently Pereira is living in his friend’s flat, they provide him with money and food. After the government approved a harsh budget in November for this year, implementing new austerity measures, Pereira decided to immigrate.

“It is the only option for me,” he says. “The future of Portugal is hopeless.”

Rui Viana Pereira, unemployed for 5 years, sees no future for him in Portugal

A lot of Portuguese people like Pereira feel like victims of austerity policy of the Troika—the European Commission, International Monetary Fund and European Central Bank—and as a result lost their jobs and were driven into poverty. The Portuguese financial crisis began in 2010 as part of the world financial crisis of 2007 and 2008 and continued until 2013 as part of the European sovereign debt crisis, which mostly affected southern Europe and Ireland. The culprits

“The main reason for the economic crisis in Portugal was the indebtedness of a banking system,” says José Castro Caldas, researcher at the Centre for Social Studies, University of Coimbra.

The involved local banks were Portuguese Commercial Bank (BCP), Portuguese Investment Bank (BPI), Banco Espírito Santo (BES) and Portuguese Bank of Business (BPN). According to the Constitutional Court report, the financial needs of the banks contributed to the more expenses for the government; these expenses grew to €11.5bn in 2012 (about 7 per cent of GDP.) All these ailing banks needed to be nationalised, and BPN, which is actually a very small private Portuguese bank, was technically in default. BPN’s CEO and some of the main stockholders have ties to the government and even Portuguese President Aníbal Cavaco Silva. In a result BPN bank absorbed 40 per cent of the €12bn lent by the IMF.

“Let’s make a simple exercise with the BPN bank,” explains Rui Viana Pereira. “Suppose we would close the bank, pay an indemnification to the 1800 workers, tell them ‘go home, we will pay you a salary for five years, in case you don’t find an equivalent job or salary in the meantime,’ and, of course, also give back the [€3bn] to the people who had deposits in the bank. How much would this cost? About €3.11bn.” “Now that we got this number, it is the right time to remember that the bank, after being nationalized, had already cost the state €5.5bn by the end of 2010—and the costs go on and on till nowadays, even after the re-privatization of the bank.”

Over-expenditure and investment bubbles created through shady public–private partnerships also played the huge role in this matter This kind of contract involves private corporations and state departments or state-owned corporations. The private part agrees to work on a public project, a highway for example, Pereira explains. As compensation, it can exploit the highway for, say, 30 years, with little risk to the potential profit. If something goes wrong, like the high-way is swallowed by a volcano, or no one wants to use the high-way, (which in fact is happening because it is less expensive to use a common road), the State pays a compensation to the private company.”

The reverse effect

Looking at figures, the social consequences of the entry of the Troika in Portugal are easy to analyse. The shift to austerity took place in April 2011 when the Troika negotiated the Memorandum of Understanding—a document that expresses mutual decision on an issue between two or more parties—and was signed by the four bailout countries: Ireland, Portugal, Greece and Cyprus. Instead of attaining the objectives, such as recovery of the economy of the state and reduction of the deficit, drastic austerity measures led to the recession.

According to Countryeconomy.com, unemployment rates reached unprecedented heights of 17 per cent in 2012. Although unemployment in Portugal decreased in 2013 and 2014, in comparison to other EU member states it was still high, at 15 per cent, while youth unemployment reached 35 per cent according to the latest data for February this year. Taxes on workers have been raised by about 30 per cent. About 1.1 million Portuguese are now living in extreme poverty, according to the OECD. The current national debt is 132 per cent of GDP according to National Debt Clock. debtportugal General Secretary of the Economic and Social Council of Portugal Catarina Braga comments on why the Troika programme hasn’t produced tangible results.

“The plenary of the council, amongst other things, has noted in the report about the state budget for 2014 some issues that the plenary considered to be mistaken in the draft of the programme. The plenary thought that the issues regarding Portugal were not only about its public finances, the problems were deeper than that.  The weight of domestic demand on growth and jobs was underestimated. The state reform didn’t touch structural aspects and timeframe for the implementation of the programme was scarce.”

The president of the council Peneda also admits that the programme had several weak points. “The austerity is not the best way of solving the problem. The Troika programme wasn’t successful,” he says. He believes that only a long-term programme lasting 10 years can work in a case of Portugal. “We need a gradual approach. The objectives should be very balanced. You can’t put as a priority only one of them, that’s how it was with the Troika programme—the only priority was the budget deficit. It is a wrong way to define policies.” He also added that the recovery of Portugal economy very much depends on the situation in the Eurozone. “If there are no changes in the Eurozone, it will be impossible for Portugal to change its current situation.” The faces of crisis

“What is happening now in Portugal can be called invisible genocide,” says Rui Viana Pereira. “Because of the drastic austerity measures of the Troika policy many hospitals and health centres in all parts of the country were closed and very poor people who are living in countryside just can’t get the medical help. And they are dying there and no one knows about it, that’s why the genocide is invisible.” Rodrigo Cabrita is a photographer. He is taking pictures of victims of so-called “invisible genocide” – the elderly, who suffered the most from the austerity measures of the Troika. He and a group of 8 photographers created the Troika Project  – an online platform, a book and a film about the last three years under the strict economic rules imposed on Portugal by the Troika. “We want to capture this dark moment of our history,” says Cabrita. “And our mission is to show only the truth without transmitting any wrong message.”

The idea of the Troika project originally belongs to two photographers: Lara Jacinto and Adriana Miranda. In 2012 they already had the similar project called 12:12:12. “That time we gathered 12 photographers to capture 12 month of the year 2012 to show the consequences of the economic crisis”, explains Lara. A big part of Lara Jacinto’s family immigrated from Portugal. That’s why the subject of her work in Troika project is immigration. “People are leaving Portugal not because they always dreamed to do this, they just don’t have another option. That’s the only possibility for them to find a job. There are no job opportunities in Portugal.” Lara is also going to immigrate to Switzerland very soon.

Portuguese people usually immigrate to Germany, France, Brazil and Switzerland. In Lara’s works she wants to capture the moment of separation of the person with his native country, family and friends. “I want to show, what do people feel, what are they thinking about in this difficult moment. And sometimes it is very hard for me to take pictures of people, who are leaving their families, having no return ticket,” she says.

Rodrigo Cabrita decided to take part in this project because he tired to see in all newspapers in Portugal only the numbers. “All we can see on pages is thousands of people unemployed, thousands are starving, thousands are immigrating. But we can’t see the faces of these people. And they just don’t have a way to show how strongly they are struggling and how their life is difficult indeed. And the main mission of our project is to show stories of real people. We are people, we are not numbers!” he says. Its probably the last this kind of project of Rodrigo Cabrita. “Is that because you feel the pressure from the government?” I asked. “No, that’s because I feel sadness,” Cabrita answered.

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Take the blame

The year when Portugal started to implement all the austerity measures, numerous organizations against the Troika policy as well as citizen debt audit networks (whose goal is to critically analyse debt policies conducted by the authorities of a country and the impact of them on the population) began to appear in the country. Besides being a researcher José Castro Caldas also has strong political beliefs and civil position. He contributes to the Initiative for a Citizen Audit (IAC) and takes part in different protest actions and demonstrations.

José Castro Caldas, researcher at the Centre for Social Studies thinks that people shouldn’t blame themselves for the sovereign debt crisis

He believes that people were pushed to accept blame for the indebtedness of the government. “The government is trying to convince us that the crisis started only because people lived above their means,” he says. “People really blame themselves for their misfortune and very often the defendant admits his guilt even if he is not guilty.” Caldas believes that the organizations like IAC, International Citizen debt Audit Network (ICAN), Committee for the Abolition of Third World Debt (CADTM), Committee for the Abolition of Portuguese Public Debt (CADPP) etc. are helping people shift from the original way of conceiving the debt problem. “If you really try to understand what caused the sovereign debt crisis, you won’t feel blame any more,” he says. “Instead you have to demand from those who produced the crisis to share the burden at least. It took a long time to change this perception.”

Resistance is there

The protest movements in Portugal during these three years under scrutiny of the Troika weren’t as noticeable as, for instance, the activity of the Spanish Indignados or Greek Syntagma Square protesters.

Rodrigo Cabrita believes that the Portuguese mentality is to blame for that. “We are peaceful people and we don’t want to fight with anyone,” Cabrita says. “We always hope that someday the situation will change. And the government in its turn isn’t afraid of us and does more and more harm, while most of the Portuguese people just don’t care about politics. Instead of protesting, they are watching football. But we should change and be more practical, because hope is gone.”

The Portuguese resistance is in fact there, even though it didn’t receive proper media coverage, Caldas believes. “If you look at this period in a comparison with other periods in our history, on the average there is at least one bigger or smaller demonstration a day. And some of them were huge, like the one held on Nov. 14 2012, when thousands of people took the streets of Portugal as part of a European wide general strike. Also this month, a wave of protests across Portugal marked the 40th anniversary of Carnation Revolution. People protest against the new austerity measures. In the end of April Portuguese government will introduce a special temporary tax to pensions payments above €1,000, in an attempt to lower the country’s public deficit. Veterans of the revolution attended rallies where participants sang Grandola Vila Morena, the theme song of the revolution, holding red carnations in their hands and banners demanding the government to “stop stealing citizen’s pensions.”

 

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“But during the difficult periods when people are accumulating setbacks, they tend to be depressed and they simply devote themselves to their private and family lives and only occasionally this apparent concept turns into protest,” Rodrigo Cabrita says.

Alternatives to austerity

Across Europe it is now being debated whether austerity is the right way for the country to recover its economy. But the question for Portugal is whether there were any alternatives.

Caldas, the University of Coimbra researcher, believes the best alternative to the bailout package was the immediate restructuring of the national debt. While the problem of the debt itself seems very ambiguous, Pereira says. “The Memorandum of Understanding with the Troika was actually signed by the former prime minister of Portugal José Sócrates, and in fact he resigned even before the memorandum. Six months later he held a conference in one of the main universities in Poitiers, France and he said there that believing that a debt can be paid is a childish idea. Debts are not to be paid. Debts are meant to be administrated. And he was actually right.” There is no country in the world without the problem of indebtedness. Pereira believes that a huge debt is something that feeds itself. “Huge debts give the origin to a huge interest. And in order to pay that interest the government had to ask for more money.”

Clean exit

The Portuguese government is now preparing to exit its €78bn bailout in May. By the end of last year many investors were convinced that a second bailout is the only possible decision for Portugal. But now Portugal’s chances of making a clean break from its international bailout in May are growing as its economic outlook gradually improves for the first time in more than three years. The state has yet to decide whether to request a precautionary loan after the end of the bailout to support its market financing. But some recommend caution given Portugal’s is still fragile economy. The decision will be made by the end of the month.

“But actually it won’t change anything for people,” says, Pereira. “After the bailout exit, the new austerity measures will follow anyway.”