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Resignation, Not Revolt: Portugal's Unusual Calm On The Brink Of Economic Collapse

Singing the blues in Lisbon
Singing the blues in Lisbon
Mathilde Farine

LISBON – Manuela, an animal rights activist, is standing outside the entrance to the Entrecampos train station in Lisbon, calling out to the occasional passersby, who pretend they don’t see her.

The majority of the shops in the station’s arcade are empty, and even though the building is new, there is a feeling of neglect. The trains, which depart from the second floor of the station, set off into the capital's autumnal, muggy haze.

When the economic crisis is mentioned, the young woman starts with a sigh - she has had to pay a heavy price. The 30-year-old Lisbon native lost her job in a veterinary hospital and since then, has had to accept a lower-paying job in a beauty parlor. She dreams of moving to the Netherlands or Switzerland, and blames Europe for pushing Portugal into a never-ending cycle of recession and budget cuts.

At the beginning of 2011, despite austerity measures that were well underway, extremely high interest rates were strangling Portugal. In April, prior to socialist José Sócrates's departure as Prime Minister, the government decided to ask for international aid. The troika - the European Central Bank (ECB), the European Commission and the International Monetary Fund (IMF) - took up residence in Lisbon and tried to tackle the reduction of the deficit, which had reached 7.3% of the GNP in 2010.

The last seven trimesters have been marked by recession, and forecasters do not predict growth for next year either. At the same time, the rate of unemployment has risen to 15%, a figure that has never been seen before on the Iberian Peninsula.

Depression lurks in the winding streets of this city of seven hills. The recession is worsening. The GDP is expected to shrink to 3% this year, down to 1% next year. Moreover, Portugal is going through a decade marked by a growth rate inferior to 1%.

The country has had to deal with China's integration to the World Trade Organization (WTO) in 2001 and the subsequent torrent of cheap textiles in the marketplace. Also, the European Union's eastward expansion has created fierce competition in attracting foreign investors. "The car manufacturing industry has moved to the East," says Pedro Lains, professor in history and economics and the University of Lisbon. Volkswagen is the notable exception. A stalwart of Portuguese exports, it represents 3% of the total.

Almost wiped out, the textile industry has, however, reacted by becoming more upmarket and remains one of the country's most important export industries, along with machine tools. "Rather than making t-shirts as they did before, some companies are now focusing on printers for printing t-shirt patterns," explains Pedro Lains. High-quality fashion garments and shoes, made by state-of-the-art equipment, are replacing the production of simple, casual wear. "But that takes time, and the crisis has crippled this process," Lains says.

State of emergency

"Our country is in a state of emergency," says Sandro Mendonça, in a typically Lisboan restaurant, where the ceramic tiled walls create an echo.

The economist, a specialist in competitive performance issues, aggressively sticks his fork into his grilled sea-bream, as if he were stabbing it into the back of the troika or the government. He has sifted through all the measures in the "memorandum of understanding," signed by Portugal and outside financial providers. In the hundreds of provisions, only a handful was found to be able to realistically improve growth. "No more than 2%. The measures are supposed to promote activity, but that doesn't mean they will be effective. They are often too far-flung or too vague," he says, citing, for example, the incentives for universities to become more privatized.

In the capital and its surroundings, the feeling of resignation has taken over. "We have been spending more than we actually have. We really need to tighten our belts now," sighs João, a young manager for a chain of luxury hotels. The exorbitant amount of taxes being imposed is discouraging. However, people know there is no alternative: a thought shared by many Portuguese people.

At the beginning of September, the center-right Prime Minister Pedro Passos Coelho announced that social security contributions paid by employers would be lowered to 18%, from 23.75%. In return, workers would see their contribution climb from 11% to 18%. The announcement was met with an outcry, and numerous demonstrations. Even economists and business leaders criticized the decision, judged to be completely unjust, so much so that the government has retracted it.

Disappearing budget

Still, dissent has gone down a notch and a calm has settled over Lisbon. Even more so than usual. "There are no traffic jams, the roads are generally clear now that carpooling has grown in popularity, and companies have reduced the amount of cargo transportation. Now, we can see the good side of the crisis," explains Vincent, originally from Switzerland, who has lived in the suburbs of Lisbon for almost 30 years, as he hurtles down the small, paved alleyways and off onto the main boulevard.

The calm is obscuring the fact that austerity has pushed Portugal to the brink. "For this year, the troika demanded that the budget be reduced by 2 billions euros. The government, which has publicly announced that it wants to do more, has warned that it might reduce it by 5 billion. The result is that it has ended up with a budget of 1 billion because it hadn't anticipated the contraction of economic activity and the drastic reduction in income," outlines Pedro Lains.

In fact, Portugal's budget deficit must go down to 4.5% of the GDP this year. Creditors have agreed to adjust this prediction to 5%, and to give the country more time, in order to have a balanced budget by 2014. "This government is obsessed with the idea that if accounts are made healthier, things will take off again. But that has never worked, anywhere. And, in this case, it could do a lot of damage," he warns.

Numerous economists are also criticizing the cuts, which are usually salary cuts and tax hikes, but rarely spending cuts. Entrepreneurs are also starting to worry. "The worst isn't austerity. It's the government's equivocation. They decide on something one minute and then change it the next," deplores Antonio, who is the manager, along with his wife, of a small interior design business. "I don't know how much tax I'm going to have to pay next year - 50%? More? How are we supposed to invest and hire new people in these conditions?

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