As Eurostat reports that Portugal’s deficit has increased by 7 billion – tipping it six full percentage points over the government’s expectations – a damning new report commissioned by the IMF has concluded that austerity, when all is said and done, isn’t working.
The report entitled: “Adjustment in Eurozone countries with deficits” doesn’t say this in so many words. Rather it uses financial terminology to point out that “external re-equilibrium has been made at the cost of internal balance” in Portugal leading to “very high unemployment” and a “slowing of adjustment”.
But the bottom line is that after three years of fiscal asphyxiation, a lot more needs to be done if the country is to get out of the woods.
According to Eurostat, public debt has now risen to 132.9% of GDP – when the government forecast that it would actually drop to 126.7%.
This makes Portugal the 3rd country in Europe where the deficit has risen most. Only Slovenia and Hungary are in worse positions.
And when it comes to the percentage of debt versus GDP, Portugal is again in 3rd place – doing slightly better than Italy (135.6%) and a lot better than Greece (174.1%).
While the IMF report is not binding in any way on Europe’s economies, it will almost certainly prompt more pressure from troika bosses.
Whether this will continue to focus on public sector salary cuts remains to be seen. Certainly, the economists’ report defends the need for “additional structural reforms in the product and labour markets” as a way towards “increasing productivity and growth potential”.
Hard-hitting ‘alternative’ news portal Esquerda.net comments that “the IMF’s relationship with reality continues to be problematic”.
