By Chris Graeme [email protected]
In one of her last public speaking engagements before stepping down as leader of the centre-right PSD party, Manuela Ferreira Leite painted a black, funereal portrait of Portugal’s future.
Addressing members of the Portuguese-Dutch, French, Belgian-Luxemburg and German chambers of commerce in Lisbon last week on the topic of ‘Prospects for the Portuguese Economy’, Portugal’s Iron Lady issued a stark warning that if the government, and country, didn’t change its outdated economic models now, she faced being in the same boat as Greece within two years.
Lampooned as the “witch” by her political opponents, the stern yet respected no-holds barred economist apologised for painting a black perspective but warned that even if shock treatment, cost cutting measures were taken, she wasn’t sure “if the cure will kill the patient before the disease does”.
The PSD president prescribed a five per cent cut in government administrative and public spending in all areas, including pensions and salaries, to bring the ballooning 9.3 per cent budget deficit under control.
She said that she doubted that the current government, with its present policies, would be able to reduce the deficit to the three per cent stipulated by the EU’s Growth & Stability Pact by 2013 without such cuts, but warned that raising taxes would serve to harm Portugal’s companies, economy and ward off foreign direct investment.
“I think it is really unbelievable that we’ll be able to cut public spending in four years to bring it back to three per cent,” she said, calling it “un-executable”.
“We will have to raise taxes, which is the last thing the economy needs right now, but we’ll have to do it,” she warned. Whichever way the government did it, the Portuguese were in for “suffering”.
Defending the ratings agencies, Manuela Ferreira Leite said that the independent financial markets “reacted according to facts” and did not “invent them”, and stressed that they knew that Portugal was heading for trouble.
“Of course we are presently in a better state than Greece but, by doing nothing, we will continue down the same road as they have and, within two years, we will be in the same situation,” she warned.
Manuela Ferreira Leite also blamed the press for not spelling out to the public the true gravity of Portugal’s economic situation in which she was living beyond her means.
The opposition leader said the Portuguese needed to save more, produce more transactional goods for sale on the international markets, while the government had to create the right conditions to attract direct foreign and private investment and foster private enterprise.
The last thing Portugal needed at the moment were large public spending schemes such as a new international airport when passenger traffic at Portela was declining, a TGV which would bring no obvious economic benefits, or more roads on which no one would drive.
“Our public and private debt is worrying, including the state of our banking system and we don’t have the internal capacity in savings to invest and so have to borrow outside Portugal.
“We are all hostages to this situation but we cannot avoid difficult changes,” she said.