Clean exit? Dirty exit?

As ruling politicians call this week’s return to financial markets a “clean exit” from the adjustment programme, critics and unionists are calling it anything but.
“How can we talk about a clean exit with a country that has been socially destroyed?” Union leader Arménio Carlos (CGTP) was not expecting any answers when he gave an interview to Público.
“For the Portuguese, this is a dirty exit that puts our collective future at risk,” he said.
“What is at play here is the continuation of the politics of inequality and impoverishment of the country.”
For all the support Arménio Carlos may have, there are just as many voices proclaiming the government’s decision to ‘go it alone’ without a “cautionary credit line” a triumph.
“This is a good day for Portugal,” President of the European Council Herman Van Rompuy posted on Twitter. “This is a strong Portugal in a strong Europe.”
Political spin at its best continued in the aftermath of Prime Minister Pedro Passos Coelho’s announcement on Sunday.
“The announced conclusion of the programme shows once more that the path followed by the eurozone is the right one,” Germany’s minister of finance Wolfgang Schäuble told news services.
“Portugal has succeeded in a spectacular manner to finance itself independently.”
Nonetheless, the grim-faced line of ministers flanking Passos Coelho on Sunday hinted at the truth behind the hard-won ‘financial independence’.
Correio da Manhã newspaper revealed that it has come with a price tag of €1.2 million in interest payments every day.
Far from having emerged ‘squeaky clean’, CM claims the government is sitting on “a cushion of €15 billion” that it will use “if things go wrong”.
The cushion – put together last year – “will permit our country resist the oscillation of the markets for a year”, adds CM.
In other words, “it is an equivalent to a precautionary credit line”.
Reasons for the ‘spin’ proclaiming a clean exit, CM continues, are the looming European elections and the ‘image of fragility’ the request for a credit line would have given the markets.
But whatever the strategy, the truth is that government debt – now at 129% of GDP – is still far higher than levels in 2010, when borrowing costs started to spiral out of control.
And however we want to look at this week’s conclusion of the adjustment programme, troika partners will still ping pong back and forth from Brussels to check Portugal’s finances for many years to come.
Under the current redemption schedule, Portugal is set to repay its last loan to the IMF in 2024 and its last European loan in 2042.
“It’s not from one day to another that we will enjoy all the benefits of being totally autonomous,” Passos Coelho conceded. There is “still a long road ahead”, for which he is hoping for the support of the long-suffering Portuguese people.
Whether he gets it or not remains to be seen.

Constitutional Court still key

Key to government ‘success’ in this crucial exit year will be the way the Constitutional Court (TC) deals with certain measures in the 2014 state budget.
The court is reported to be purposely holding fire on its decision-making until after the European elections on May 25.
But in its latest report, the EC warns that “important negative risks” centre on what the TC makes of the ‘extraordinary solidarity contribution’ payments demanded by the government, as well as the latest cuts to state workers’ salaries.
If either is deemed unconstitutional, finance chiefs would be sent running back to the drawing board – and as critics are clamouring “we all know what that means!”
“In the week where the government dispenses the need for financial help on returning to the markets, the Portuguese learnt that IVA is going up, all workers will pay more TSU (social security contribution), that cuts to pensions become permanent and there will be more sackings in the public sector,” Socialist leader António José Seguro said on Monday.
“In other words, the country is returning to the markets, but the Portuguese will have to suffer more sacrifices.”
Brussels may be buoyant – declaring that Portugal is set to grow by 1.2% this year and 1.5% next year – but the OECD is less punchy, and has even warned that public debt could increase to 131.8% before it turns the corner.
Thus, as European leaders cheer Portugal from the sidelines, we’re left questioning who has got it right.
Eurogroup president J. Dijsselbloem said this week: “I would say that the time of very rigid austerity has passed” – but on the same day Socialist legend Mário Soares considered: “The majority of Portuguese people don’t have enough money to eat.”

|| Troika warning as adjustment programme nears its close

An inscrutable Subir Lall left a chill in the air as the Troika decamped following the 12th and final evaluation of Portugal’s adjustment programme, now days away from coming to its close.
Talking to journalists, the economist for the IMF maintained that despite the political mileage being made – with high-profile government figures like Paulo Portas declaring that Portugal has “recovered” its freedom – there is a very long way to go, and the country still “needs profound changes”.
Backed by his troika partners (the EC and European central bank) Lall stressed the danger of complacency and the need for Portugal to commit itself to medium and long-term reforms as well as “budgetary consolidation” (the new buzz word being used to replace its overused predecessor ‘austerity’).
In its press release on what is effectively the last ‘report’ while Portugal is still bound to the terms of the €78 billion bailout, the Troika said: “High levels of indebtedness in the economy underscore the need for decisive measures to reduce corporate debt and associated risk premia.”
It is those “decisive measures” that the country awaits with trepidation.
Meantime, the conclusion of this final review “could take place in June”, says the press release, which would allow for the release of the final €2.6 billion tranche of bailout funding.
By NATASHA DONN [email protected]