Saturday 24 February 2018

Another euro crisis scalp

The Portuguese parliament's rejection of another austerity package left the Socialist Party leader with no choice but to resign

This week's resignation of Portuguese Prime Minister Jose Socrates, following the rejection of his government's austerity package by parliament, is the second major scalp to be claimed by the crisis gripping the eurozone periphery.

With the exception of some suspiciously choreographed minor rioting in Greece, one of the truly remarkable features of the eurozone financial crisis has been, after almost 18 months, the virtual complete absence of any serious opposition to the brutal austerity measures being demanded by the EU and the IMF in return for financial support.

We in Ireland have obediently endured four savage Budgets, with the prospect of at least four more to come, while the Greeks have swallowed their prescription of swingeing spending cuts and painful tax increases with a meekness that few would have forecast when the crisis first erupted in the autumn of 2009.

True, the Irish electorate ejected Fianna Fail from power and stripped the "natural party of government" of almost three-quarters of its parliamentary seats in last month's general election, but everything was done by the book in a strictly constitutional matter.

Austerity plan

In any event, the new Irish Government has agreed to a programme that incorporates most of the elements of its predecessor's four-year austerity plan.

This week's events in Portugal, where the Portuguese parliament voted to reject the government's austerity package, provide the first indication that the eurozone crisis may be approaching the limits of austerity.

However, before drawing too many conclusions from this week's events, it is important to emphasise that Portugal is different from the eurozone's two other problem children, Greece and Ireland.

Ireland, like Portugal, was a founder member of the euro in 1999. With the Celtic Tiger already roaring loudly, the lower interest rates and seemingly infinite supply of credit that the euro brought in its wake served as the cue for the greatest knees-up in Irish economic history.

Something similar happened in Greece, which only just managed to meet the criteria for euro membership in 2001 by cooking the books.

Unlike either Greece or Ireland, Portugal experienced no such bacchanalian excess. Instead, what was already Western Europe's poorest economy has endured the lowest growth rates in the eurozone for the past decade. The euro pushed up Portuguese costs and, with the country no longer able to devalue its currency, destroyed its international competitiveness.

Having already voted for a savage 2011 budget, which cut public spending and increased taxes, the Portuguese parliament baulked when asked to vote for a further instalment of austerity measures this week.

Does the Portuguese parliament's rejection of the latest austerity package signal that, after a year-and-a-half of acquiescence the PIGS (Portugal, Ireland, Greece and Spain) are finally beginning to push back?

Fiscal medicine

While the refusal of a national parliament to accept the fiscal medicine prescribed by Brussels is certainly unprecedented, this week's dramatic events almost certainly owe at least as much to unique Portuguese circumstances as to wider eurozone considerations.

The Portuguese Socialist Party, of which Mr Socrates is the leader, holds only 97 of the 230 seats in parliament.

As a minority government it had previously relied on the support of the main opposition party, the Social Democrats -- in reality a conservative party which owes its somewhat misleading name to the chaotic aftermath of Portugal's 1974 revolution when right-of-centre parties found it politically-expedient to clothe themselves in left-wing garb following the overthrow of the Salazar dictatorship.

However, with the Socialists now trailing in the opinion polls and a general election due to be held within two years the Social Democrat leader Pedro Coelho moved in for the kill.

Following this week's parliamentary defeat, the date of the general election, which had previously been scheduled for 2013, has been brought forward and will now be held in May or June of this year.

While Mr Socrates remains as caretaker prime minister, his powers are now strictly limited. This means that the approval and implementation of the austerity measures which were rejected by the Portuguese parliament this week have been postponed for at least two and possibly up to three months.

Despite his party voting against the government's austerity plans this week, Mr Coelho is unlikely to radically alter Portuguese economic and fiscal policy.

This calls for the government to reduce its budget deficit from the 6.9pc of total economic output recorded in 2010 to 4.5pc this year. In reality, what seems to be happening in Portugal is the reverse of what happened in Ireland.

Last November, an Irish Government on its last legs was forced to go cap in hand to the EU and the IMF for a bailout.

It then used its parliamentary majority to vote through a savage Budget to give effect to the terms of the bailout before finally calling a general last month.

In Portugal, the collapse of the Socrates government means that any substantive bailout discussions will have to be conducted by the new government, which is arguably what should have also happened in Ireland.

Mr Socrates is unlikely to survive as party leader much beyond this year's general election. In truth, it is remarkable that he has survived as long as he has. While there are very few of us who haven't buffed up our CVs from time to time, Mr Socrates has been particularly creative in that regard.

He always claimed to have received a degree in civil engineering and an MBA. However, soon after first becoming prime minister in 2005 it began to emerge that there was somewhat less to Mr Socrates's apparently impressive educational record than met the eye.

While he had certainly received a diploma-level qualification in the subject from the Portuguese equivalent of a polytechnic in 1979, his 1996 civil engineering degree from Universidade Independente, a private Lisbon college, was not quite so straightforward.

Media investigations unearthed the fact that four of the five subjects that he passed were taught by the same professor, a Socialist Party supporter, while the fifth was taught by the university's rector.

Even more mysterious was the fact that the university didn't have a civil engineering department at the time Mr Socrates "graduated" while the degree was issued on a Sunday, a day on which the college was always closed.

Further spice was added to the affair when Socialist Party officials allegedly tried to block reporting of the matter with threats of legal action. Whatever the rights and wrongs of the affair, Universidade Independente was compulsorily closed by the Portuguese authorities in 2008, one of three "degree mills" that were shut down in Portugal during this period.

Mr Socrates's MBA also took a battering when it was discovered that he had completed only one year of the two-year course.

Still you can't keep a good politician down. After leading the Socialists back into power in 2005 with an overall majority in parliament, the only time this has been achieved since Portugal became a democracy in 1974, the party retained power, albeit with a reduced number of seats, in the 2009.

It's unlikely to be third time lucky for Mr Socrates. With the electorate set to hold him and the Socialists politically responsible for Portugal's economic crisis, he looks set to become the second major scalp -- after our own Brian Cowen -- of the eurozone crisis.

He won't be the last.

Irish Independent

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