Portugal Latest Country to Try Cutting Economy to Achieve Prosperity

Another Chance to Watch Economic Policy in Action

In Europe the problem economies are known as PIGS, Portugal, Ireland, Greece and Spain.  Italy could be included in their, but there is no room for them in the acronym so they get a pass for now.  Portugal is going to be the latest country to severely contract its economy in hopes of not contracting its economy.



This is known in business planning cirles as
a "hockey stick" plan.  Down now, up tomorow



The measures announced Monday include unpopular moves such as eliminating bonuses equivalent to two months of salary, in 2012 and 2013, for public workers and retirees making more than €1,000 a month ($1,390). They will give private-sector companies the option of implementing a 30-minute-a-day increase in working hours without any additional pay. The government will also keep a 5% salary cut in the public sector for some workers next year, a measure it implemented in 2011.

and

The new proposals follow cuts in spending on the health and education sectors, sharp rises in public-transport fees, substantial increases in fuel taxes and a temporary income-tax increase in 2011, all of which were announced earlier this year to meet this year's deficit targets

the result being

some workers could see their annual income cut by 24% next year.

The rationale as to why this will help was explained by the Finance Minister

The government of Portugal, a country of nearly 11 million, expects its recession to last until the end of next year. But Mr. Gaspar said he believes that the austerity plan will lead to economic growth, by breeding what he calls a "structural transformation" of the economy—changes to labor market and judicial system rules, as well as an ambitious privatization effort.  .  . He added that after two years of contraction, the economy should grow again by 2013, once accounts are controlled and structural reforms are implemented.

So here we have another country that is going down the road of contracting the economy in the hope that in a couple of years something will happen to grow the economy.  But if it doesn’t, don’t worry, Portugal, Britain and the others will not change their policy.  Just like it has to rain sometime, the economy will have to grow sometime, and when it does the policy makers will consider themselves proven right, regardless of the pain and suffering and misery they have inflicted on someone other than themselves.