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Good choice of ministers, says top economist

By CHRIS GRAEME [email protected]

Thirty years of living beyond its means has led Portugal to the brink of bankruptcy without funds to support a social state, says an economist.

Speaking at the launch of his new book Portugal, O Fim da Ilusão (The End of the Illusion), which was co-hosted and organised by the American Club of Lisbon, Dr Henrique Medina Carreira warned that Portugal had the worst economic growth since the First World War; the highest level of unemployment in the last 80 years; the largest public debt in the last 160 years and the largest external debt in the past 120 years.

Following the success of Portugal Que Futuro? (Portugal, What’s the Future in Store?), which has sold more than 20,000 copies, Professor Medina Carreira has launched his new book at a time when Portugal is facing one of the most difficult and turbulent political and economic chapters in its modern history.

He said that for years he had been warning about the probable collapse of the nation’s public finances but had been laughed at, ignored and even called “all manner of names”.

Now the “chickens were coming home to roost” but Portugal’s situation could have been avoided with firm budgetary policies, adequate structural reforms and if Portugal had been prepared for the internationalisation of its economy.

Speaking at the Hotel Sheraton to an audience of around 500 people, the economist pointed out that since 1998 Portugal had resisted collapse despite the fact that its balance was already in the red. Portugal got into debt at home and abroad by borrowing easy money on the international money markets to finance the indebted state.

Yet Portugal suffered from insufficient competitiveness, sluggish economic growth and higher than average inflation.

“Things are as bad now financially as they were at the start of the 20th century,” he said, adding that solid growth levels consolidated under the Salazar regime in the 30s to the 60s reached a maximum peak of around 6% and have been on a downward spiral ever since,” he added.

Medina Carreira said the time for dreams and illusions was over and Portugal needed a profound transformation from top to bottom and policies without any illusions.

“Our country is going through the greatest crisis in living memory: an economy in shreds, a gigantic public debt, a massive external debt which has led to our increasing impoverishment; unemployment levels that are higher than any existing records, a justice system that was useless and slow; an education system that had no present and no future in its present form, a systemic corruption intentionally fuelled by a lack of measures taken by the political class to deal with it and lastly mass emigration of those clever enough to see the writing on the wall which was fatal for the nation’s prosperity.”

The lawyer and ex-minister of Finance said that Portugal’s growth rate reached a peak of 7.5% by the end of the 1960s when the State’s expenditure corresponded to 16% of GDP. By 1970 that figure had risen to 20%, by 1980 32% and then shot up to 39% in 1990, 43% in 2000 and 50% by 2009.

Rising expenditure

One of the country’s problems was demographic: a falling birth rate and a rise in pensioners. But demography was only half of the problem since people had been retiring at 47, 50 and 55 and on huge and over-generous pensions the State couldn’t afford.

In the 1990s 26% of Portugal’s product was spent on the State, by 2000 that figure had jumped up to 34%, in 2010 it was 42% – leaps of 10 in thirty years. In the 1970s and 80s taxes were sufficient to cover these increases. But since 2000 taxes have remained largely static while State expenditure has skyrocketed and therefore the amount of State debt, since taxes were not enough to cover it.

However, the economist said he was fairly confident in the new government and that it had been a “good choice of ministers” and “ministers who don’t make their living from politics but have been successful on their own merit,” he said.

Referring to the new ministers of Finance, Health, Education and the Economy, Professor Medina Carreira said: “These people don’t need politics to survive on. The worst are those lice that continue within. When politics becomes a way of making a living, there’s nothing beyond it but self interest,” he said.