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Hard-hit Portugal makes joyless exit from bailout

Published on 15/05/2014

Portugal exits a three-year, 78-billion-euro ($108 billion) international bailout programme on Saturday, a landmark that sparks little joy in a population still struggling on a diet of economic austerity.

Portugal is the second eurozone member to emerge from European Union-IMF assistance, a new poster child for the deeply unpopular budget-slimming prescriptions handed out to debt-struck nations on the periphery of the single currency zone.

Prime Minister Pedro Passos Coelho’s government won praise from European partners for its decision to exit the international bailout programme without requesting the financial safety net of a precautionary line of credit.

But many Portuguese found little reason to celebrate the end of the bailout programme supervised by a “troika” of official creditors: the European Commission, European Central Bank and IMF.

“It’s going from bad to worse. Incomes keep falling and taxes keep rising. Access to healthcare has become very expensive. The troika is going but the austerity is staying,” said Dina Nunes, 53.

Nevertheless, her small ceramics store in an alley in Lisbon’s historic neighbourhood of Alfama is always full. “There are lots of tourists but they buy less, they have the crisis at home too,” Nunes said.

– Brink of collapse –

Struck with full force three years ago by the debt crisis that had already pushed Greece and then Ireland into the arms of the troika, Portugal suddenly found itself unable to afford the soaring borrowing costs it was being charged by financial markets.

On the brink of financial collapse, the country grabbed a financial lifeline in the form of a 78-billion-euro loan. The string attached was its agreement to enact unprecedented austerity measures, including slashing public sector salaries and pensions while raising taxes by 30 percent.

The government applied the austerity remedy with zeal. But when it decided to raise employee social security contributions so that companies could pay less, many people decided enough was enough.

Hundreds of thousands of Portuguese descended into the streets in autumn 2012, outraged by a perceived injustice. A fragile consensus in favour of austerity had been shattered, yet over time the popular mobilisation faded away and resignation took its place.

In spring 2013, Portugal emerged from recession.

“The recovery is here. We have sufficient financial reserves to last a year but I know many Portuguese still do not feel the improvement in their daily lives,” Coelho conceded.

An investor rush, lower borrowing costs, deficits tamed, growth after the worst recession since 1975, booming exports and record tourism: on paper the country seems to be out of trouble.

– ‘I lost my job’ –

But nearly one in five Portuguese lives below the poverty line with an income of less than 409 euros a month. The unemployment rate has come down but is still at 15.1 percent, and 37.5 percent for the young.

“The government says the economy is doing better but we don’t see it. I lost my job and at my age I have got little chance of finding another one,” said Antonio Silva, 55, at the Conde Redondo employment centre in Lisbon.

Laid off last month by a Lisbon restaurant along with five other waiters, he now receives an unemployment benefit of 420 euros a month. Despite a slow economic recovery, companies are still letting people go.

An apparent decline in unemployment is in fact largely due to people leaving the country at a rate equivalent to that of the 1960s. Some 300,000 Portuguese left the country between 2011 and 2013, or six percent of the workforce.

“The troika has left a weighty legacy. Its prescriptions of austerity helped to destroy a considerable part of the economy and employment in Portugal,” said Pedro Lains, lecturer in economic history at the University of Lisbon.

The troika’s intervention nevertheless stanched the bleeding in the nation’s accounts: since 2010 the annual public deficit has been cut in half, easing to the equivalent of 4.9 percent of the nation’s economic output in 2013. But the accumulated public debt has surged, rising from 94 percent of annual output to 129 percent in the same period.

“The crisis is not over because the illness persists with very high public and private debt. But there has been important progress,” said Joao Luis Cesar das Neves, economics lecturer at Lisbon’s Catholic University.

Ireland exited its own bailout package last Deecember, the first eurozone nation to do so.