Portugal was the third member of the eurozone to obtain a bailout. Some argue that the €78 billion package won’t be enough, but, in her visit to Lisbon in November, German chancellor Angela Merkel said a second bailout wouldn’t be necessary.
Portugal is the poorest country in Western Europe and one of the least educated within the OECD. Corruption is a serious concern and 97% of respondents from a recent survey saw it as a major problem for their country.
Portugal’s crisis, in contrast to those of the Republic of Ireland and Greece, has come to a slow boil that many observers put down to a lack of competitiveness and economic growth. Here, three Portuguese fund selectors share their opinions on what went wrong with their country and how the damage can be fixed.
José Eduardo Bonito, Eurovida – Companhia de Seguros de Vida
‘The Portuguese economy has stalled, mainly because of its investments in non-productive activities, supported by easy access to cheap credit. To make things worse, the globalisation of markets and the strengthening of emerging countries with low-cost labour and high levels of production weakened developed markets’ competitiveness.
'Last but not least, our entry into the European Union and the adoption of the euro made it difficult for Portugal and other European countries to develop in a long-term sustainable way.
‘Of course, there are no free lunches; we have to pay our debts, but we need time to recalibrate the state’s balance sheet as our problems are mainly structural. We can’t solve decades of economic structural problems in three years (the Troika deadline).
‘We need to achieve a balance between growth and austerity, because we can’t pay our debts without a growing economy. Portugal needs to rebuild its enterprising drive and domestic demand.
'In order to do that we should: implement short-term measures, such as restoring credit to productive sectors like export companies; foster private investment in productive enterprises; relieve taxes on export companies and external investment; and boost domestic demand.’
Paulo Joaquim Farinha Gonçalves, Banco Popular Gestão de Activos
‘Our country’s problem has been the slow growth of the economy over the last decade together with the growth of public spending which eventually became uncontrollable.
'Politicians thought that public debt didn’t need to be repaid, but instead helped to boost the growth rate. At the same time borrowing costs were very cheap for peripheral countries, at almost the same rates as the core countries, because the perception of similar risk among the eurozone’s constituents implied solidarity.
'Although austerity is necessary to correct the structural imbalances, I think these measures should be implemented over a longer period. The solution is to increase growth rates but the million dollar question remains: how to boost growth while maintaining our social and political models?
‘The first priority should be a complete shake-up of our justice system which would solve many problems like corruption, fiscal evasion and so on. Justice is a basic requirement to attract both foreign and domestic investment to our more dynamic economic sectors that in turn could bring higher levels of competitiveness and growth.’
Diogo Serras Lopes, Banco Best
‘There are many causes behind our current predicament but for me the main one was the very high debt/GDP ratio, consisting mainly of private debt, not public debt, which Portugal carried when the global financial crisis started in 2008.
'That’s a common feature in almost all of the eurozone’s peripheral countries. Public expense cuts are necessary, but executing them all in the first few years is a self-defeating strategy both in terms of deficit and debt reduction. The answer is a more balanced austerity programme and obviously more time to implement it.
‘The biggest challenge for Portugal was, and still is, the low level of education, especially when compared with other eurozone countries. Also, structural reforms in the labour market and justice system are necessary.
'Some are already taking place. In my view, these points will be much more important than simply regaining competitiveness through reducing labour costs which, in an increasingly globalised world, doesn’t seem to make much sense.’