Will Portugal Be Austerity’s Next “Catastrophic Success”

I’ve written a few times about how austerity has done a number on Portugal. It’sincreased inequality, shrunk the economy, increased the country’s death rate, driven unemployment to record highs, led to a mass exodus of educated-but-unemployed young Portuguese (much as happened in Ireland), and left the country in a state of disrepair and despair. Meanwhile, public workers and Portugal’s poor have born the brunt of a “more pain, less gain” budget, that combined steep tax hikes with massive pay cuts, slashed state college funding, put schools on the chopping block, devastated the country’s health care system, raised the national retirement age, and increased work hours for public sector workers.

Now, it looks like austerity may topple Portugal’s center-right, pro-austerity government.

Portugal, considered to be the best student of austerity economics in Western Europe, has seen little economic benefit from the budget cuts and tax hikes of Prime Minister Pedro Passos Coelho and Finance Minister Vítor Gaspar. Protesting the effects of a budget that even The Economist described as “more pain, less gain,” Portugal’s two largest trade unions brought transport to a halt across the country on June 27 in a general strike.

Facing these poor results and public opposition, Finance Minister Gaspar-considered the architect of Portuguese austerity-suddenly resigned last week. Amid the failures to meet fiscal targets, blockages of portions of his budgets by the Constitutional Court, and perceiving “significant erosion” of public support, Gaspar felt compelled to leave the government. His resignation was followed by that of Foreign Minister Paulo Portas, head of the Christian Democratic CDS-PP, the junior governing coalition partner to PM Coelho’s center-right Social Democratic Party.

These resignations have added economic uncertainty to Portugal’s economy to accompany the political uncertainty, as bond yields and stocks fell after their announcements. Despite Coelho’s public refusal to quit as well, Portugal’s President Aníbal Cavaco Silva is meeting with the country’s political parties beginning today as he decides whether or not to dissolve parliament and call snap elections. Recent polling indicates that if an election were called, the center-left Socialist Party (PS) and other left-wing parties would capture a majority of seats. If they formed a coalition together, they would likely try to negotiate the terms of the bailout, a platform of the PS’s likely partners in government, the Communist Party (PCE) and the Left Bloc (BE).

Back in May, prime minister Pedro Passos Coelho told Portuguese citizens, “The choice is not between austerity and no austerity. Not meeting the terms would cause us to leave the euro and have catastrophic consequences for all.” But austerity’s already has catastrophic consequences for ordinary Portuguese. As one man – among the poorest of Portugal’s poor, and resident of a shantytown where inhabitants are as desperate for water – put it: “Life is bad.”

Back in 2008, the 500 or so slum dwellers of Terras do Lelo were finally looking forward to a better life.

The authorities had decided where they would relocate the mainly Portuguese-speaking immigrants and Roma from their plywood and corrugated iron shacks that disfigure the fringes of one of south Lisbon’s smartest beach resorts.

And then the financial crisis struck.

…Five years on, as Portugal slashes its budget to please international lenders that provided a 78-billion euro bailout in 2011, there are no longer any public funds to erase the scar of shanties that would not look out of place in Mumbai or Soweto.

“Right now the state has no money to move people from here, but they should at least provide us with minimum conditions,” said Euclides Fernandes, 33. The slums have no legal electricity, no sewerage and no running water.

“The emergency in the neighbourhood is water,” said Fernandes, who lost his construction job when the sector slumped. “With unemployment everything gets worse. We’re feeling it. Families who were paying rent and now don’t have an income are coming back here.”

The poverty of Terras do Lelo may be extreme, but the one-two punch of budget austerity and recession is being felt across Portugal, a nation of 10.6 million.

What’s happening in Portugal is what happens after people shake of the malaise of austerity, and answer for themselves the question that austerity inevitably poses. NYT’s Frank Bruni distilled that question last year, in a profile of Ana Luisa Nogueira, a young Portuguese woman who began photographing the as a hobby, and watched the messages change tone from playful to despairing.

As Europe’s financial crisis deepened and Portugal reeled, Lisbon’s walls talked. “Abandon all hope, you who still believe in me,” they said, in Portuguese. “Portugal died. R.I.P.”

That epitaph was long gone by earlier this month, when I joined Nogueira, 37, for one of her walks. But we found other writings, including several with the same blunt refrain of hopelessness.

“You will never own a house in your life,” it said. Except it said this with an unprintable adjective before “your life.” It said this with vitriol and heartache.

In the late 1990s and early 2000s, Portugal was a very different place, riding high on the promise of the European Union, optimistic. So, to varying degrees, were Greece, Spain, Ireland, Italy. Today they’re enduring a magnitude of sacrifice, uncertainty and anxiety that trumps what America is going through, not to belittle our hurt, and that serves as a warning and lesson.

What happens when the gap between what people thought lay ahead of them and what they now confront is allowed to widen as quickly and as much as it has in these countries? How do they adjust?

It’s a question that the people themselves will answer, in the streets and/or at the ballot box. The kind of austerity and runaway inequality Portugal has experience since 2007 or 2008 leads to violence and instability, when the indifference of policy makers, combines with the desperation and despair of a people struggling to live under austerity, to createwhat Robert Reich calls a “tinderbox society.”

It’s a combustible concoction wherever it occurs: Increasing productivity, widening inequality, and rising unemployment create tinder-box societies.

Public anger and frustration can ignite in two very different ways. One is toward reforms that more broadly share the productivity gains.

The other is toward demagogues that turn people against one another.

Portugal’s conservative, austerian governing coalition doesn’t not realize it, but – in the words of Bonnie Tyler’s 1983 hit single – they are “living in a powder keg and giving off sparks.” More austerity measures may be the spark that sets off a conflagration that consumes Portugal.