Angela Merkel visited Portugal on Monday to give a message of “tough love”, as the FT put it:
The German chancellor praised Lisbon for the “courageous way” it had implemented deficit-reduction measures, saying there was “at the moment no reason to renegotiate” the adjustment programme…
Ms Merkel said she wanted to “bring hope” to a country that was showing “great determination to overcome a difficult period”, promising German support for training young people. Portugal was an example that showed European economies could become more competitive, she added.
The visit and all the encourgagement Merkel dished out seemed very much designed to show that austerity is the answer to the eurozone’s woes, and that Greece is something of an outlier, a black sheep.
Raoul Ruparel, from the think tank Open Europe, was quoted in The Telegraph arguing that Merkel needs good news to mollify her fractious coalition and to keep alive hope that Greece is a one-off disaster:
“They cling to the story that Greece is unique but Portugal has similar structural flaws and the same overvalued currency,” he said.
As the paper notes, Portugal has household and corporate debt of 370 per cent of GDP, which is the world’s second highest after Japan.
So news that the government is most likely going to miss its agreed five per cent deficit target this year, reported on Tuesday by Portuguese paper Diário Económico, won’t be very warmly received. The deficit target has already been moved up from 4.5 per cent in September. The paper didn’t cite its sources, but said that the government will be discussing this with the trioka this week as it conducts its latest review of the adjustment programme. There’s a chance, the paper says, that the miss could be significant.
Via Google Translate:
International authorities should accept a slight slippage of a few tenths [of per cent], as already signaled by the Eurogroup during the weekend. But this time the Government does not preclude slippage assumes a larger dimension.
The other problem for all concerned is that the public mood in Portugal has been souring of late. The FT’s Peter Wise wrote last month of the “sudden breakdown in the broad political consensus over Lisbon’s adjustment programme and the threat of a potential split within the ruling centre-right coalition”.
Also:
An unexpectedly strong backlash to Portugal’s increasingly tough austerity measures has triggered an upsurge of public discontent and political skirmishing, threatening to undermine the fiscal progress Lisbon has made with its €78bn bailout programme.
President Aníbal Cavaco Silva has convened a meeting of the state council, his top advisory body, later this week in an effort to ward off a political crisis, while hundreds of thousands of demonstrators took to the streets on Saturday in the country’s biggest anti-austerity protest to date.
Just before Merkel’s trip, a group of a hundred Portuguese academics signed an open letter to have the German Chancellor considered persona non grata on their soil.
They’re not the only ones. To give just one more example, the magazine I Informação greeted Merkel with the unflattering cover below. It’s topped with a modified version of a saying apparently used by condemned Roman criminals fated to die in mock battles for the entertainment of the emperor:
“Ave Angela, morituri te salutant”, meaning “Hail Angela, those who are about to die salute you”. (Click to enlarge, H/T Open Europe.)
So while Portugal’s progress through the adjustment programme is indeed smoother than Greece’s, there are growing signs of discontent, which are only likely to become more pronounced as the tough tax rises kick in next year. But Portugal is also key to Merkel’s austerity strategy. If it also goes the way of Greece, with targets missed and mass strikes proliferating, her approach will come under growing scrutiny with her position in Germany and Europe weakened.
It will be fascinating to see how any future target misses are treated. Quite leniently, we expect.
Related links:
Merkel visits Lisbon to bolster austerity – FT
Lisbon raises taxes to meet bailout terms – FT
