4 July 2013 — The Real News Network
President Silva’s austerity policies made Portugal a darling of the troika, but highly unpopular at home (inc. transcript)
Costas Lapavitsas is a professor in economics at the University of London School of Oriental and African Studies. He teaches the political economy of finance, and he’s a regular columnist for The Guardian.
JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I’m Jaisal Noor in Baltimore
Portugal’s government is in crisis after two cabinet ministers resigned from President Silva’s administration, prompting a rout in European stock and bond markets and raising renewed questions about the viability of austerity. The departure of the foreign minister followed the resignation of the finance minister, Vitor Gaspar, the chief architect of Portugal’s austerity program, which cut spending and raised taxes on the middle class as a condition for bailouts from the troika.
Now joining us to talk about the latest from Portugal is Costas Lapavitsas. He’s a professor of economics at the School of Oriental and African Studies at the University of London, he’s a member of Research on Money in Finance, and he’s a regular columnist for The Guardian
Thank you for joining us.
COSTAS LAPAVITSAS, PROF. ECONOMICS, SOAS, UNIV. OF LONDON: Pleasure to be here.
NOOR: So can you give us your reaction to this latest news coming out of Portugal?
LAPAVITSAS: I think there are two very important factors explaining what’s happening in Portugal. The first is essentially the failure of the economic program applied to the country by the troika and accepted by the government. That failure is manifest in the unemployment rate, which is almost 18 percent, youth unemployment more than 40 percent, public debt getting out of control, the economy being for two and a half years in recession and no prospect of its getting out. Essentially, the Portuguese economy’s dying on its feet.
So the second element that explains what’s happening is, of course, the reaction of the Portuguese people. When this crisis of the Eurozone started in 2010, the reaction of the Portuguese people was generally muted. However, with the passage of time, people have begun to see more clearly what’s happening, and in recent months we’ve had very, very important and significant mass mobilizations in Portugal and a clear understanding of what’s been happening to the country. And so the reaction of the Portuguese people has created great difficulties in continuing with the program.
So I think these two elements are very important for the Portuguese problem [incompr.]
More generally–and this is the last thing I want to say–of course the reemergence of crisis in Portugal shows very clearly that the crisis is not finished with the Eurozone as a whole. It hasn’t been resolved. The Eurozone continues to go from crisis to crisis. Basically the system is unviable and the policies of austerity applied across it are having very bad results.
NOOR: And can you talk more about the role Portugal’s anti-austerity movement is played? There was just two nationwide strikes last week.
LAPAVITSAS: That’s basically it. You see, for austerity to prevail and to be pushed through, the population must accept it. What’s happened in much of the periphery of the Eurozone over the last two, three years is that through extreme perseverance by the government of these countries and by the troika, the population by and large in many countries has been forced to accept austerity. Even in Greece, where people responded in a very lively way in 2010, 2011, in 2012 they were basically browbeaten into accepting austerity.
Now, austerity must be accepted by the population. Otherwise it doesn’t stand a chance. And it looks as if the Portuguese people have had enough. It looks as if they have begun to realize that this is a disaster. It’s destroying an entire generation of young people. And it offers the country no prospects of growth, no better future. The expected growth rate of the Portuguese economy in the coming years, if the best scenario materializes, is no more than 1 percent. This is no growth rate for a country. Portugal is basically condemned to wither away.
NOOR: So, considering that Portugal was the role model of austerity as recently as last year, talk about what impact what’s happening in Portugal is going to have for the rest of the E.U.
LAPAVITSAS: I think it’s very, very important that people understand the nonsense that austerity basically is and how misguided and misdirected the whole thing is. Austerity basically says–or, rather, the policies forced by the troika on various peripheral countries basically says the crisis is the fault of peripheral countries, and therefore peripheral countries must take upon themselves to restructure themselves, must bear the brunt of adjustment. This is basically how the thing has worked in the last three years.
So what have peripheral countries been forced to do? They’ve been forced to reduce public spending, increase taxes, and of course crush wages.
Now, if you reduce public spending, increase taxes, and crush wages, you’re of course crushing the economy. You’re destroying demand, you’re destroying businesses, you’re making unemployment rise, and you hope that things might be better through exports.
Now, when you look at Portugal, you will realize what absolute nonsense this is, because of course the crisis in Portugal was not caused in the first place by extravagant public expenditure in the previous years. It wasn’t caused by wages going through the roof. On the contrary, the Portuguese economy didn’t do very much in the previous decade. It actually grew very little. The state was also very conservative. Wages didn’t rise particularly fast–certainly not exorbitant. And exports in Portugal were never particularly strong and never were going to be very strong. So the policy applied on Portugal made the wrong diagnosis, and it brought the opposite results to what it intended to bring.
Why did that happen? Because essentially the troika refuses to see what the fundamental problem with the Eurozone is, which is Germany. The problem in the Eurozone starts from the unbalanced structure of the thing itself, and the unbalanced structure has to do with Germany in the first place. Unless Germany itself restructures its economy, nothing is going to go right in the Eurozone. Germany must strengthen its domestic economy, strengthen its domestic demand, must strengthen its wages, improve wages for the German people, and it must rebalance the Eurozone economy as a whole. Germany must bear a large part of the burden of the crisis if the Eurozone is to survive. There is no prospect of that, however, at the moment. There is no prospect at all. That’s why the Eurozone, in my view, hasn’t got much of a future in the coming period.
NOOR: Now, is there any indication that Portugal itself will abandon these austerity plans or at least try to form a new coalition government that might at least try to renegotiate the terms of the bailout from the troika?
LAPAVITSAS: This looks like a serious crisis, though I’ve got no close insight into the Portuguese politics, so I cannot tell you what is being discussed behind closed doors. But it looks like a serious crisis, and it looks like a crisis that will indeed ruin the ruling coalition.
The problem with having a new government that will forcibly renegotiate the bailout agreement and will actually insist on having debt relief, which Portugal needs, and on every direction of economic policy towards boosting domestic production and reducing unemployment. The problem with this is that of course Germany with [incompr.] Germany has got elections in three months, and the last thing that Ms. Merkel would want to see right now would be a major upheaval and a complete disruption of her policy so far. So she will resist it, I’m pretty sure, and pressure will be applied to the Portuguese–I’m sure of that–to continue along those lines, to find some other political coalition that will continue along those lines. I don’t know if that’s feasible, but I think that this is what the troika will try and bring about in the coming days.
NOOR: Thank you so much for joining us.
LAPAVITSAS: It’s a pleasure.
NOOR: And thank you for joining us on The Real News Network.
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