Youth and poor bear brunt of austerity in Portugal


FACING LINES of grim-looking police officers, several hundred Portuguese indignados gather at the foot of the steps leading up to the country’s imposing assembly building,
writes TOM HENNIGANin Lisbon

On the protesters’ side at least, the mood appears relaxed, even as masked anarchists – some in Anonymous masks – move through the overwhelmingly youthful gathering.

Reggae music booms out from a sound system mounted on a truck and the smell of hashish hangs in the air. At the back of the crowd one man holds up a sign claiming “The Rich Eat While The Poor Pay”, as a group advocating “bio-diverse family farming” hands out free organic soup.

Another placard grimly jokes “Follow Your Dreams (Cancelled)” but many others have a sharper political focus: “Troika Out! IMF Out! Cancel the Debt! Enough Social Terrorism!”

This stand-off in one of Lisbon’s smarter neighbourhoods is one of the new frontlines the euro zone debt crisis has thrown up across Europe.

In the middle of the crowd, Marisa Batista holds aloft a sign saying “Austerity is not the Solution” – a statement, one of her friends points out, with which many of the world’s leading economists agree.

“This so-called solution is being imposed by the markets and is killing any chance of recovery,” says Batista. “Thanks to austerity there is now no chance of new jobs here. Instead there will be just more unemployment when so many of us are out of work already.”

Batista says she is typical of many of her generation. After six years of study to become an architect she never secured a full time job, instead moving from one poorly paid short-term contract to the next.

Even that work has now dried up and without even the right to draw social welfare she has been forced, at 32, to move back in with her parents:

“It is disorientating but what can I do? I feel I have no future at the moment. Right now, I just avoid thinking about tomorrow.”

A commotion breaks out as a group of anarchists tries to rush the assembly steps. Police draw batons and beer bottles fly through the air. One well-dressed woman old enough to be the mother of most of the crowd present looks on, shouting “Shame on you!” at police reinforcements.

“This is what happens when you have a political class that is not able to defend its own people,” says secondary school teacher Conceição Fonseca.

“These scenes remind me of the Salazar years. I remember when I was young like these people here, we had to fight the dictatorship for our rights. And now basic rights are being taken away again, thanks to austerity. I cannot understand EU policy. The union no longer represents its peoples. Now it just represents its financial sector.”

Though she still has a job, Portugal’s own troika-supervised austerity programme means Fonseca will take a pay cut this year. For her 38th year teaching in one of Lisbon’s largest public schools she will take home around €22,000.

“I can still cover my own expenses but it means I will no longer be able to help my two children,” she says. “They are trying to support their own families but like so many young people are on precarious short-term contracts and could be jobless at any moment. I just feel anguish over the future. It is like a black hole.”

In her school, she estimates that of the 1,200 students from one of the city’s tougher neighbourhoods up to 60 per cent are not getting enough food at home and are increasingly reliant on school meals. “I see it every day. The crisis has left a lot of families suffering.”

ACROSS THIS COUNTRYof 10.5 million, the social fallout from Europe’s debt crisis has led to a surge in people relying on soup kitchens.

“Between 2008 and 2009 the situation changed very quickly and since then demand for our services has gone up by between 300 and 400 per cent,” says Manuel de Lemos, president of the União das Misericórdias Portuguesas, a Catholic charity that runs a network of kitchens across the country.

“People who not long ago would never have thought they would need our help in order to be able to eat now come to us. Now we are seeing whole families showing up, people from the lower middle class who have lost their jobs, children eating more on Fridays and Mondays because there is little money at home for food over the weekend. And we expect even more demand for our help in 2012.”

With austerity set to tighten its grip this year as the government struggles to get a 9.8 per cent deficit in 2010 down to 3 per cent by 2013, people are increasingly apprehensive, warns Elísio Estanque, a professor at the Centre of Social Studies at Coimbra University.

“The crisis is hitting Portugal’s younger generation hardest, with youth unemployment at 26 per cent. In terms of potential being wasted they are the principal victims. This is why they are indignant,” he explains.

More broadly, a whole swathe of society that saw its lot improve with the democratisation and integration into Europe that followed the overthrow of the Salazar dictatorship in 1974 now faces an uncertain future.

“The lower middle class thought they would continue to progress socially, but now that process is in reverse,” says Estanque. “Austerity means the social advances achieved in public health and education since the ’74 revolution are now at risk.”

After a decade-long public and private credit splurge that followed entry into the euro, Portugal was last May forced to follow Greece and Ireland and ask for an EU-IMF bailout after markets, spooked by their own reckless lending to the country, gradually cut off its credit lines.

Since then, at the troika’s behest, the right-wing government that won last June’s general election has wielded the budgetary axe as it seeks to bring the country’s costs into line with receipts.

POLLS SHOW THATthe Portuguese are divided about their fate. Most accept the country must relearn to live within its means.

“You can say what you like about austerity or the troika, but the fact is everyone wanted to believe the lies the banks told about how we could all own a nice house and a car, regardless of how much we earned. We got to the point where we were borrowing money to pay off loans. It snowballed,” says Luis Oliveira, a salesman enjoying his lunch in Lisbon’s winter sunshine.

But surveys also show a majority believe austerity is unfairly targeting society’s most vulnerable rather than the bankers who did so much to run up the country’s debt.

Even among economists who agree with the need to cut back the country’s “bloated” public sector, there are doubts about the efficacy of the troika’s demands for austerity without any offsetting stimulus to help an economy lurching deeper into a depression.

“Right now the biggest constraint to growth in Portugal is that Europe is imposing austerity on itself everywhere,” says Pedro Santa-Clara, professor of finance at Lisbon’s New University. “We cannot all cut our demand at the same time. Well, we can but it is disastrous.”

Santa-Clara warns the government’s zeal for cuts in the public sector is not matched by enthusiasm for other desperately needed reforms. “All the measures to promote growth agreed with the troika are behind schedule. We have been very quick at doing austerity and budget cuts but have to this day not implemented the really important growth-promoting measures, such as desperately needed judicial reform.”

With little prospect for a return to growth any time soon – and with it the ability to service the country’s debt – financial markets are pricing in a 66 per cent chance that Portugal will default.

Its paper was downgraded to junk status by Standard Poor’s earlier this month, making Portugal the second euro zone country after Greece to be rated “junk” by all three ratings agencies. Market talk is rife of the need for a second bailout.

And yet the government seems to have no plan B. “The new government says it wants to ‘go beyond’ the troika’s demands and some of its members seem to want to use the crisis to take revenge for what they see as all the wrongs of the ’74 revolution and cut back the state’s role in society,” says economic historian Pedro Lains.

“Austerity is needed but our leaders need to bargain it for something in return from the troika, not try to outdo its demands.”

In part the government can act this way because most Portuguese have “internalised moral hazard as an explanation for the crisis”, blaming themselves – whether it be their politicians, bankers or credit-happy consumers – for the bust, according to political analyst Pedro Adão e Silva:

“This is the discourse used here to explain the crisis rather than any discussion about the systemic imbalances in the euro.”

Economist and blogger João Castro says it is now clear it was a mistake by the euro zone’s periphery states when at first they only looked to internal failures when seeking to understand the crises that engulfed their economies without raising the issue of the single currency’s inherent flaws.

“This error, fed by the central authorities, helps Germany and other countries of the centre impose the austerity with which countries such as Portugal and Ireland will pay for the errors of Maastricht and the activities of German banks,” he says.

As yet there is no political force in the country ready to articulate such views or represent those worried that austerity will send the economy into a fatal tailspin.

“The opposition Socialist Party is totally discredited, having been in power when the country was forced to agree the troika’s terms for the bailout. It does not yet oppose the austerity terms it agreed but even if it did so no one would take it seriously,” notes Adão e Silva, himself a former Socialist leader.

With Portugal behind Ireland in implementing its austerity programme, steep cuts in public salaries will only start to bite this year when the country’s central bank says the economy will contract by 3.1 per cent. Private forecasts warn it will be more like 6 per cent.

Tens of thousands are leaving each year in the biggest wave of emigration since the Salazar dictatorship fell.

In a grim kind of symbolism, this year Portugal will not observe the traditional Restoration of Independence Day holiday. In the drive to meet the troika’s targets the government is cutting back on national holidays.

The troika itself is meanwhile holding up Ireland as a success story for the Portuguese, now that our falling risk premium has decoupled us from those of the other bailed-out states. But the indignada Batista only wants to know if the work situation is better there.

Told Ireland’s unemployment rate is higher than Portugal’s she laughs dismissively: “And that is success to them.”