Wednesday, June 13, 2012

Portrait of Portugal in the Midst of Austerity – The Country is Calmly Facing Economic Disaster

Not a Lost Decade for Portugal – A Lost Generation, If They Are Lucky Enough to Hold It At That

While Greece and now Spain are getting the attention of the news media there are other countries of Europe that are struggling under the imposition of austerity imposed by creditor nations.  The New York Times has a picture of Portugal, whose poverty and poor economy in the past has made today’s plight a little more tolerable.  Here is the snapshot.

That coolheaded assessment, on the lips of Portuguese everywhere, seems an apt summary of this country’s approach to the euro crisis, which last spring drove tiny Portugal into a $96 billion bailout and a painful austerity program.

The most optimistic projections point to a 3 percent contraction of the economy this year, after a 1.5 percent decline in 2011. Officially, unemployment is at 14.9 percent, its highest point in more than a decade, and more than 30 percent of the country’s young people are out of work. But some analysts suggest that the government is underestimating the true jobless rate, especially for youths, which they say may run as high as 40 or 45 percent.

Hospitals are closing. State benefits, public wages and pensions are being cut. New taxes have been added, and old taxes increased. The government has sold its stake in the national electric company to a state-run Chinese corporation.

While turmoil and electoral unrest has accompanied the problems in Greece, Portugal seems relatively accepting of their fate.  This is probably because the country never was an economic powerhouse, the post war dictatorship being the cause of arrested economic development.

Memories are still sharp here of the poverty of the mid-20th century, when just half of homes had running water and only 30 percent had electricity. In the 1980s, with the state nearly bankrupt and inflation running at over 30 percent, more than one million workers saw their salaries withheld for months on end. There were no major protests, though, said António Barreto, a sociologist and former government minister. Most workers declined buyouts and continued to work without pay.

Of course, all this suffering could be justified if it was likely to result in better times for the future.  It is not.

There is little immediate prospect of growth, economists say, particularly with educational levels far lower here than anywhere in the European Union or in much of the developed world. In 2009, only 30 percent of Portuguese adults had completed high school or its equivalent, according to figures from the Organization for Economic Cooperation and Development.

“The poor Portuguese, they have just neglected to invest in high-quality human capital,” said Daniel Gros, the director of the Center for European Policy Studies in Brussels. The only path to growth will be through further wage cuts, Mr. Gros said, “because their economy, structurally, given the low human capital, is in products and industries in which low-wage competition is just overwhelming.”

Portugal has an export dominated economy, and exports can serve the function of a Keynesian stimulus, acting place of government spending to drive employment and growth.  But things don’t look so good in that sector.

oao Pina for The New York Times
The factory at TemaHome, a furniture company, where sales have dropped to $10 million from $18.5 million in five years.

That competition has changed the outlook at TemaHome, which has been manufacturing furniture since 1981. Five years ago, annual sales hit $18.5 million, with 70 percent of that coming from exports to the rest of Europe. Last year, with demand plummeting, sales fell to just $10 million.

In 2007, 160 people worked on TemaHome’s factory floor in Tomar, about 75 miles north of Lisbon; today, there are just 105, and the company is struggling to compete with factories in Eastern Europe and China, said Luís Vicente, the production director. TemaHome’s future lies in producing high-quality, customized furniture, he said, and it has hired a handful of designers and salespeople even as it has shed factory workers. Revenues in the first quarter were up 20 percent this year.

“This crisis is making us a little stronger than we were otherwise,” said Miguel Calado, one of TemaHome’s primary investors. “And you can say the same thing about the country.”

The problem, Mr. Calado said, is that the health of the Portuguese economy — which, like TemaHome, relies heavily on exports — is linked to demand in Europe, which is tipping into recession.

So as Europe lurches into full blown recession the residents of Portugal will be doing what an increasingly number of other Europeans will be doing, trying to survive.  In the post war years the western world organized charitable relief for people starving in Asia.  One wonders if in the post Great Recession world the Asian world will be organizing charitable relief for people starving in Europe.  No not likely, but it could happen. 

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