''Portugal's Dilemma: Reform or Social Defense''
With the weakest economy in the European Union's western core, Portugal is now in the throes of what analysts call a political "crisis" that reflects the difficulties of its structural adjustment to E.U. standards.
Since its "Carnation Revolution" in 1974, when left-wing military officers eliminated the last vestiges of the Salazar dictatorship and disbanded the country's African empire, Portugal has stabilized as a parliamentary democracy dominated by the left-center Socialists and the right-center Social Democrats, both of which are committed to maintaining Lisbon's good standing in the E.U. Over the last three decades, the country has modernized in fits and starts, in which periods of rapid development have alternated with periods of stagnation and dispersion.
The present crisis, set off by Socialist President Jorge Sampaio's dissolution of parliament and the subsequent resignation of the government led by Social Democrat Pedro Santana Lopes in coalition with the rightist Popular Party, registers the exhaustion of a period of growth and the beginning of an uncertain time that will either precede a reconsolidation or will signal a chronic state of weakness.
Portugal's troubles highlight the fundamental dependence of the E.U.'s integrity and power on economic growth and prosperity. In periods of development, underlying social tensions are muted and the political system is stable. When the economy slackens, those tensions are brought forward and expressed in political incoherence that jeopardizes the fulfillment of E.U. norms.
The Economic Context of Political Instability
After a spurt of economic growth and infrastructure modernization in the late 1990s, Portugal's economy has recently subsided and contracted. During 2003, G.D.P. per capita decreased by one percent, unemployment has recently risen to 6.8 percent and the public deficit is now approximately five percent, far above the E.U.'s limit of three percent of G.D.P. In 2001, Portugal became the first state in the E.U. to exceed that deficit ceiling.
The causes of contraction are rooted in international economic conditions and domestic obstacles to structural reform. Most importantly, external investment has lagged as foreign businesses have looked to Eastern Europe and Asia, where production costs are lower. That long term disadvantage has been compounded by lagging growth in Europe, leading to an imbalance between exports and rising imports. At the same time, internal market reforms have stalled, with tax revisions, civil service reductions and further privatization in question.
Economic reversals have impacted the less advantaged sectors of the population the most, providing the Socialists with popular support for their call to mend the social safety net, which has been weakened by government spending cuts.
With the fall of the center-right government and public opinion polls showing strong Socialist gains, Portugal appears to be poised to shift toward a government committed to social defense after elections in February 2005. That would place Portugal in the pattern that has recently emerged in the southern cone of South America, where left-of-center governments have replaced market-oriented administrations after failures of the latter to bring prosperity.
The Run-up to "Crisis"
The political consequences of Portugal's underlying structural weaknesses date to July 2004, when Premier Jose Manuel Durao Barroso resigned to become the head of the European Commission. At that time, Sampaio could have called for new elections, as his Socialist Party requested, but he decided instead to ask the Social Democrats to form a new government under Santana Lopes' leadership.
Upon assuming office, Santana Lopes pledged his administration to hasten structural reforms, include tax reductions for the middle class, streamline the civil service, move ahead on privatization and continue Barroso's policies of budget austerity. He also promised to help the segments of the population that had suffered from austerity, which, at least in the short run, would work against reform.
During the five months of his administration, Santana Lopes suffered a series of setbacks that derailed his reform program and revealed the divergences and weaknesses in his center-right coalition. To begin with, the school year was delayed by a month through the failure of the Education Ministry to assign teachers to schools in a timely fashion. Then Santana Lopes and his Finance Minister Antonio Bogo Felix had a public dispute over the tax-cut proposal, which was opposed by the financial establishment on the grounds that it would exacerbate budget deficits. Standard and Poor's lowered Portugal's debt rating, spotlighting the country's economic weakness.
The ability of Santana Lopes to run a tight ship came under severe question when Parliamentary Affairs Minister Rui Gomes da Silva announced his surprise that government regulators had not disciplined the private television station TV1 for the anti-government commentaries of its popular analyst Marcelo Rebelo de Sousa, a former leader of the Social Democrats. After meeting with the owner of the station, who reportedly told him to moderate his criticism of the government, Rebelo de Sousa resigned from his post, setting off a flurry of condemnation from Lisbon's political class, including top Social Democratic officials.
The embarrassments to Santana Lopes' administration led to a cabinet reshuffling in November, in which Gomes da Silva was moved to the position of the premier's deputy minister and Henrique Chavez was moved from that post to minister for youth and sport. Four days later, Chavez resigned, accusing Santana Lopes of being disloyal and untruthful, and declaring that the Premier had not permitted him to discharge his functions as deputy minister properly. Most pointedly, Chavez questioned "whether the government disposes of the necessary conditions to govern."
The Fall of the Center-Right Coalition
After summoning Santana Lopes for consultations on November 29, Sampaio dissolved parliament the next day, citing -- according to presidential spokesman Joao Gabriel -- the Premier's inability to "mobilize Portugal and the Portuguese in a coherent, disciplined and stable manner." Sampaio's decision was taken at a time when opinion polls showed that the Socialists had the support of 49 percent of the voting public to the Social Democrats' 32 percent, and Portugal's central bank publicly opposed Santana Lopes' plans to cut taxes and raise wages and pensions.
Sampaio proposed to delay effective dissolution so that the government could continue to function fully for as long before the February election as possible, but on December 11, Santana Lopes retaliated by resigning and transforming his administration into a caretaker government that is constitutionally prohibited from doing more than managing day-to-day affairs. Santana Lopes' move blocked any reform legislation, pushed back a planned referendum on the E.U. constitution and forestalled implementation of the tax cuts and wage and pension hikes that parliament had approved on December 6.
As would be expected, the Socialists and the Social Democrats accused one another of acting from motives of narrow political advantage. Paulo Portas, leader of the Popular Party, added the accusation that Sampaio had caved in to the "financial sector," which opposed "cuts on family tax, and for the first time, guarantees ... to secure reasonable payments of corporate tax."
The new and popular leader of the Socialists, Jose Socrates, endorsed Sampaio's decision and looked forward to achieving a parliamentary majority for his party in the February election by running on a promise of "responsibility." He pledged to "make use of the things that were done well" by the Social Democrats. Socialist Party strategist Antonio Vitorino reassured the international and domestic financial communities that a Socialist government would exercise spending restraint.
As the Socialists gathered momentum for their electoral campaign -- confident that the embarrassments of the former ruling coalition would save them from having to address deeper structural tensions with clear policies -- the Social Democrat-Popular Party coalition broke apart, with each party choosing to run separately in the February election. According to analysts, the decision was made by the Popular Party, which would have joined the Social Democrats had it calculated that their electoral prospects were promising.
Conclusion: Reform versus Social Defense
Whatever the results of the February "snap elections" -- whether the usual coalition or minority government, or a Socialist majority -- the next administration in Lisbon will be faced with Portugal's persisting problem of navigating pressures for market reform and budget austerity from the E.U. and financial organizations, and popular demands for economic security in the face of stagnation and recession. Caught between two jealous masters, Portugal's political leadership will be put to a daunting test, because it does not seem possible to forge a compromise or to satisfy one of the claimants except at the expense of the other.
Portugal's growth was spurred by an initial burst of productive forces that had been stifled by the Salazar regime, large infusions of E.U. aid, a comparatively favorable investment climate, and an expansion of the service sector. More recently, those advantages have played out and growth has been increasingly fueled by consumption and domestic debt. Now push is coming to shove, as Lisbon faces challenges to meet E.U. standards.
Both of Portugal's major political forces promise to restrain government spending and to enhance social welfare -- a seemingly irreconcilable conflict. The Socialists fortify the promises with a commitment to act "responsibly;" the Social Democrats have been wounded by the incompetence of the Santana Lopes administration and the internecine strife that it generated, and need to regroup quickly in order to avoid a Socialist victory.
It is not likely that the greater discipline promised by Socrates will be able to overcome the underlying structural tension. The most probable scenario in Lisbon is drift, damage control and half-hearted efforts to appease the two masters.
The Portuguese situation illustrates graphically -- because it is the most extreme case -- the problems faced by states throughout Europe, as well as in South America, as they mediate between capitalist global markets and restive publics in search of social defense. Following Portugal's example, France and Germany have also overstepped the E.U.'s economic bounds.
The future of economic globalization centered in regional blocs will be in great part determined by the balance of the same kinds of forces that are so evidently in play in Portugal. If European economic growth picks up and its benefits are shared by the general population, the push for social defense will be blunted and the prospects for reform will be enhanced. If growth stagnates, popular pressures will force compromises in the broad neo-liberal project -- a sacrifice of "standards."
Report Drafted By:
Dr. Michael A. Weinstein
The Power and Interest News Report (PINR) is an analysis-based publication that seeks to, as objectively as possible, provide insight into various conflicts, regions and points of interest around the globe. PINR approaches a subject based upon the powers and interests involved, leaving the moral judgments to the reader. This report may not be reproduced, reprinted or broadcast without the written permission of inquiries@pinr.com. All comments should be directed to content@pinr.com.
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