With Greece taking a nose-dive into the deep waters of debt ridden oblivion, quite a few noises – most notably that of PIMCO CEO Mohamed El-Erian – are touting Portugal as replicating the Greek tragedy and being “the next Greece” so to speak. Even so, there are quite a few reasons to suggest otherwise, and there is every cause to believe that Portugal might eventually manage to get its finances under control. All the same, where this idea ranks along the wide scale between pessimism and delusion is very much up for debate. For starters the difference between those at the helm might prove to be decisive in the eventual fortunes of the two nations; Greece and Portugal. By juxtaposing Pedro Passos Coelho – the Portuguese Prime Minister – with his Greek counterpart, Lucas Papademos, one sees two different ends of the judicious spectrum. The Portuguese prime minister is acknowledged as a conservative head of state, and has pushed through an austerity package and downed salaries to enhance the competition between the companies. He has also privatised state-owned enterprises and reduced unemployment benefits with the added façade of overtime payments and severance pay.
The Portuguese premier has also curbed out ‘unnecessary holidays’, even though they were quite cherished by his citizens – like Corpus Christi and the Assumption Day – and the public holidays that celebrated Portugal’s separation from its union with Spain and in turn the declaration of its first republic. So, while the Portuguese are doing their best to get off their lazy backsides, why does the CEO of the world’s largest bond investor seem so certain about Portugal following Greece down the aforementioned deep waters? For starters he believes Portugal’s first bailout package worth €78 billion ($103 billion), would prove insufficient and that the country would have to ask for more money. While, we don’t have quite as extolled crystal ball as the man himself there is a myriad of reasons that might give Portugal a cause for buoyancy.
As a riposte the Portuguese prime minister and his think-tank have iterated their desire of saving their country themselves, and avoiding aid at all costs. Whilst, there is a pungent sensation of déjà vu coming out of this Portuguese episode, reminiscent of the verbal jottings being thrown out in the open when Greece was traversing a similar period, one must consider the fact that the current bailout package is enough to take the country through to September 2013 – as expounded by the economic connoisseurs – giving the country a one and a half year time span to repairing the fiscal wounds. It might just prove to be enough time to win back the trust of the financial markets and control interest rates on the government bonds, taking them to a level where self financing for Portugal becomes a veritable possibility.
Further comparisons between Portugal and Greece, when the latter was in a similar scenario, also give the former the hope of recovery. Last year the Portuguese government managed to reduce its deficit from 9.8 per cent to 4.5 per cent of the GDP. Plus, quite contrary to the Greek scenario austerity measures in Portugal enjoy a wide majority of support in the parliament. There is also a higher level of awareness amongst the citizens in Portugal, with demonstrations against tax hikes and pay cuts surfacing – something that never happened in Greece. Another important facet that goes in Lisbon’s favour is the presence of competitive companies, which provide fuel to the country’s export sector.
Hence, while there is still a long way to travel before Portugal can finally dig itself out of this mess, there is still a considerable way to go as well till the white flag is raised in Lisbon. The nation is traversing a tough time, but it seems as if they are all in it together, vying to steer clear of the Greek footsteps that have divulged, exhaustively, what one must not be doing in fiscal crises.
The writer is Sub-Editor, Pakistan Today. He can be reached at [email protected]
