LISBON, Apr 21, 2011 (IPS) – The strangling of the Portuguese economy by the international capital markets has led to what was expected: a bailout with tough conditions that will bring the country to its knees.
The administration of José Sócrates – who resigned as prime minister last month but is staying on as caretaker until a new government is formed – is negotiating with the same organisations that held talks with Ireland and Greece: the International Monetary Fund (IMF), the European Financial Stability Facility (EFSF) and the European Central Bank (ECB).
The conditions of the estimated 80 billion euro (116 billion dollar) bailout should be set within the next week or two, when a report will be sent to the European Union Council of Economic and Finance Ministers.
The report will lay out the targets that Lisbon will have to meet in order to receive quarterly loans.
To the surprise of analysts, the IMF has shown a more human face than the EU in the talks, proposing drastic measures but ones that would have less of a social impact than the more stringent demands set forth by the European Commission, the EU’s executive arm … //
… The main prescriptions include a massive privatisation plan, a more flexible labour market that would make it cheaper and easier to fire workers, significant public spending cuts, a freeze on wages and pensions, and an increase in taxes, with a view to reducing the deficit in the balance of payments.
Other possible austerity measures could be cuts in unemployment benefits and income tax benefits and deductions, an increase in the value-added tax, and the elimination for several years of the holiday bonuses, which are two extra monthly salaries a year.
Hard times lie ahead, and there is no guarantee that the people of Portugal will see relief any time soon. “Portugal is now a protectorate of the EU and the IMF,” wrote economics journalist Nicolau Santos, deputy director of the Lisbon weekly Expresso, commenting on the negotiations.
As demonstrated by other cases, the rescue to stave off collapse does not necessarily represent a solution. The shadow of Greece and Ireland fuels scepticism. Nearly a year after it started receiving external aid, the Greek economy is in recession and unemployment continues to grow, while Ireland’s GDP fell by one percent in 2010.
In the current context, especially in the case of a country with a modest, fragile economy, there is strict observance of the path outlined by the EU, which is conducive to the equivalent of a scorched earth policy in the social sphere and to the application of the law of survival of the fittest in the economic and financial spheres.
Whoever takes the reins after the June elections will not be able to resist the external pressure to continue turning private debt into public debt, especially the toxic assets of the banking system, with the increasing transfer of public money to the private sector.
The Portuguese describe themselves as people with “gentle manners” who don’t take to the streets to attack banks, loot supermarkets or set cars on fire. But desperation is growing, as people look ahead to an uncertain future.
A domino effect could also put Spain at risk, in which case the worst outcome – a financial collapse in the entire euro zone – is feared. (full text).