It has been two years to the month since the original Memorandum of Understanding (MoU) was signed between the ECB-EC-IMF Troika and the Portuguese Government. Elections followed shortly after, bringing into power a new conservative coalition government, which proceeded to implement the structural adjustment programme with unbridled enthusiasm. In the words of Prime Minister Passos Coelho in June 2011, the newly-elected government was “keen to surpass the Troika”.
And, as a matter of fact, it has: successive cuts in government spending, affecting in particular the health, education and social security areas (albeit not the police budget, as befits the ‘austeritarian’ model); sharp increases in user fees, VAT and income taxes; radical changes in labour laws (including slashing unemployment benefits, longer working hours and raising the age of retirement – significant choices at a time of hyper-unemployment); the ongoing privatisation of the remainder of the state-owned sector and numerous other measures in accordance with the austerity/privatisation/deregulation model. In sum, the full neoliberal package in compressed form, of which the economic and social effects have long been well-known from the experience of the global South in the 1980s, though it has to be kept in mind that the first-wave of Structural Adjustment Programmes (SAPs), unlike the current ones, at least made allowance for currency devaluations.
The results speak for themselves. In Portugal, U-3 unemployment shot up from 12% to 17.5% in the last two years, while broad unemployment is currently around 27% and unemployment protection coverage has been significantly reduced. Consumption, investment and therefore GDP have all been freefalling: in the case of GDP, the total reduction since the MoU entered into effect has been around -5%. The current account deficit has been significantly narrowed (in fact, almost eliminated), but that was due to the effect upon imports of the sharp compression of domestic demand and the closure of tens of thousands of SMEs (the brief spike in exports in 2012 was caused by the temporary external depreciation of the euro and was quickly reversed in mid-2012). And most tellingly of all, public debt has kept increasing in both absolute and relative terms (from 108% of GDP in 2011 to 126% at present); for the most part because fiscal revenues kept falling as a consequence of the (largely self-induced) recession. Not yet as catastrophic as the Greek case, but well on its way there – and with a fully compliant government in power.
Now, this is not quite how it was supposed to turn out, was it? Wasn’t the whole idea to bring public debt under control and to unleash the economy’s growth potential by getting rid of excessive regulation, protection and government interference? Wasn’t the slashing of ‘unit labour costs’ (that persistent fallacy, to which I shall return in my next post) supposed to have boosted competitiveness and brought about sustained growth? Well, maybe so in the fantasy world of expansionary austerity and supply-side economics. But of course we all know that austerity is not expansionary and by now we should all know that this crisis (not just in Portugal, but more generally in Europe and across advanced economies as a whole) is being driven by demand, not supply. So why do the Troika and governments across Europe keep insisting on the same recipe? Why have all seven revisions of the Portuguese MoU involved the acknowledgement of a complete failure to attain the targets that were previously set, while carrying on prescribing the same measures yet predicting an imminent recovery? Is it stupidity or malice?
Well, I certainly don’t think that either these decision-makers or their technical staff are stupid people. So, as Sherlock Holmes would put it, that leaves malice as the only plausible explanation. And we have good grounds for pinpointing exactly what malice means here. Studies of the effects of the first-wave SAPs (see here and here, for example) have shown that neoliberal structural adjustment has consistently failed to bring about growth, vastly increased poverty, but, crucially, significantly increased the capital share of national income at the expense of labour. In the Portuguese case and in 2012 alone, the labour share of income dropped from 65% to 62% ̶ and all the gains were concentrated in larger corporations, not SMEs.
This is really about getting a larger piece of a smaller pie and that is why you get a coalition of international and domestic interests pushing forth this agenda. Large capital is bent on increasing its power – even if it destroys the entire European project. There’s not much time left to rein it in and avoid such an outcome.