If only Portugal could have a coup concerning its economy

Today sees the wearing in of the new Portuguese minority government. The situation has created a lot of media headlines and a Twitter hashtag of #PortugalCoup but it would not be the first country to ever have a minority government.It is a moot point to wonder if this would have been the state of play of Passos Coelho and his government had not been so pro Euro? But of the nations which got into trouble Portugal has been the model school pupil in terms of attitude all along. Quite how this will progress though does not look so clear as the electors gave the minority government 108 seats whereas the combined opposition parties can muster 122.

However as ever the economic situation is the priority here and let me open with the central issue which is that for some time now the Portuguese economy has struggled to sustain economic growth. Even in the better years it has managed GDP (Gross Domestic Product) growth of only 1% per annum. Back in April 2007 the Economist labelled it as a new sick man of Europe and of course that was exactly the wrong position to face what was about to happen next. But what it noted was instructive.

Look at any table of European economic data and Portugal stands out. GDP growth last year, at 1.3%, was the lowest not just in the European Union but in all of Europe…….Portuguese GDP per head has fallen from just over 80% of the EU 25 average in 1999 to just over 70% last year.

So we can see that Portugal underperformed its peers in the Euro era.

Since 2000 the Czech Republic, Greece, Malta and Slovenia have all overtaken Portugal in terms of GDP per head.

The response of the Euro area to the troubles was something with which we are now more than familiar.

The commission thinks Portugal’s sin was to let public spending soar out of control, pushing the forecast deficit in early 2005 up to 6.8% of GDP, the highest in the euro zone.

The Commissioner should have issued such edicts with a red face as it was none other than one of the people responsible Jose Manuel Barosso who was an ex-prime minister. Also of course he was then responsible for applying pressure on Portugal to raise VAT to 21%, raise the pension age to 65 and other austerity measures which slowed its economy just as it was about to face a crisis. Bad Timing.

Other Problems

Partly as a result of the economic travails Portugal has had demographic problems for some time where its best educated citizens have a high propensity to emigrate abroad. VoxEurope overplayed its hand with this in 2012 but you get the idea.

Will the Portuguese be extinct by 2204?

The long-standing problem was exacerbated by the credit crunch and Euro area crisis and the population dropped in 2010 and 11 by 55,000 each year. At some point on that road a place not far from me called Stockwell by most and St. Ockwell by estate agents acquired another name “Little Portugal”. Of course migration of the better educated and economic growth problems are now in a chicken and egg style circle. In its latest Bulletin the Bank of Portugal puts it like this.

it is worth noting that the total population and the working-age population decreased (by approximately 2.0 and 5.5 per cent respectively between the beginning of 2010 and mid- 2015), driven by the recent dynamics of migratory flows and the population’s ageing.

The other fundamental problem in Portugal is the concentration of so much economic power in a few families. As each crisis emerges from its chrysalis we invariably discover issues at yet another family owned business and rather disturbingly for the taxpayer the losses get socialised as they mull who got the profits. As Pink Floyd so eloquently put it.

Us and them
And after all we’re only ordinary men.
Me and you
God only knows it’s not what we would choose to do.

‘Forward’ he cried from the rear
And the front rank died.
The general is sat and the lines on the map
Move from side to side.

Portugal has plenty of economic links with Angola and as we mull which takes the lead these days there is the issue of Angola having pretty much the same problem.

If you want it put another way the Bank of Portugal summarises the issues here.

the correction of the inefficient allocation of resources accumulated during several decades

What about now?

There is a bit of ying and yang about the latest Bulletin from the Bank of Portugal so let’s start with the good bit.

Projections for the Portuguese economy point to 1.7 per cent growth of the Gross Domestic Product (GDP) in 2015

Also there are genuine signs of something that has changed for the better here.

there was an increase of approximately 10 percentage points (p.p.) in the weight of exports on Gross Domestic Product (GDP) between 2008 and the first half of 2015 (from 31 to around 41 per cent), amid strong growth of exports in volume (an increase of 25 per cent over the same period).

This is hopeful as trade issues have seen Portugal make trips to the IMF before. However currently imports on rising strongly too which brings echoes of a troubled past with it.

Underlying these projections is higher import penetration,

Also if the Portuguese look across the nearest border they see that they are again being eclipsed by Spain which has this morning declared an annual economic growth rate of 3.4%.

Looking Forwards

Yesterday we got the official surveys for the Portuguese economy which told us this.

The Consumer confidence indicator slightly diminished in October……In Manufacturing Industry, the confidence indicator slightly diminished in October. The Services’ confidence indicator decreased in the last month,

It looks as though manufacturing confidence weakened over the summer which is something that has become a pattern now. As to consumer confidence this is a long running series (1987) but it is hard to judge a series where the peak is -5.5! As we stand it is at -17.4% and the low has been -59.8.

We will have to see what happens going forwards but the economic climate indicator has dipped from 1.4 to 1.2. If we note that its average has been 1.6 since 1989 and remind ourselves of the issues above this looks well in the words of David Byrne.

Same as it ever was

Same as it ever was


If we look on the sunny side then the hope for Portugal is that it can continue with its export performance improvement. It will welcome the efforts of Mario Draghi to drive the Euro later and also will hope for more UK holidaymakers tempted by a near 1.40 exchange-rate. Also consumption will have been helped by a lower oil price and lower inflation. On the other side of the coin gains from crude oil processing will be hard to repeat at current prices and having 2% of your GDP from Volkswagen has its issues right now! Although I understand that the plant produces models so far not affected by the scandal.

Now let me introduce a consequence of Portugal’s problems which is its national debt of 129% of its GDP. Right now with Mario Draghi helping out by buying so far some 7.77 billion Euros of Portuguese bonds it is easy to see that there is no current problem with a ten-year yield just over 2%. But can Portugal regain ground  in a debt sustainability sense as to do that it would have to grow consistently something it has consistently failed to do? After all it has a private-debt to GDP ratio of 255% according to the IMF as well.

So my conclusion is that it is a lovely country which I like very much but that it still needs to follow the advice of Tears for Fears.

You can change


I nearly forgot to add that I did an interview about Portugal for Australian public radio about 10 days ago. Here is a link to it.


You might like to note the implied view from Australia.


24 thoughts on “If only Portugal could have a coup concerning its economy

  1. Portugal is not the first country to have a minority government, as you say, but it is unusual to appoint a minority govt. when there is the certainty of a majority coalition which has not first been given the opportunity to form a govt.

    This is overt subversion of democracy by the establishment.
    Portugal’s president is acting like a dictator.

      • As Democracy has clearly failed Portugal so far, I think we should give a (benign?) Dictatorship a chance to see how it performs.

        • There is no such thing as a benign dictatorship, and the idea that if an electorate “gets it wrong”, an electorate should be by-passed, is obnoxious.
          You are Mario Draghi and I claim my £5.

      • In that case you and every one who believes in democracy (the rule of the mob) being the “right way and the only way” are getting exactly what you have voted for and deserve.

        You are in a Democracy – Scottish Independence? You are now living with the consequences of that democratic vote.

  2. Shaun, a good summing up of the situation here. Unfortunately I do not see any real improvement any time soon and with a possible constitutional crisis looming………!
    I have to say that I view the latest political developments in Portugal as another nail in the coffin of European democracy. The Portuguese president has taken the decision to prevent Eurosceptic parties from taking power to protect the Euro, satisfy Brussels and appease foreign investors. Whilst not an exact translation of his recent speech it is what he said. Germany has also signalled its preference for the previous right wing government to stay in office. When you consider how the Greek rebellion against austerity was crushed, how the Irish were forced to vote again to get the ‘correct’ result you must wonder just what sort of monster the Euro project is becoming. Neighbouring Spain is using the so called citizen protection law to muzzle opposition , unopposed by the EU as it suits their aims. Where is this all going? If a member country votes in a way that challenges the Euro doctrine then surely this should be accepted and worked out in a democratic framework. So far the Eurocrats have simply overridden or ignored voters concerns and appear to take the view that the populace do not really know what they want and that they know better. It is going to be very interesting to see what happens in Spain and what we can expect there. Vote rigging to keep the right in power? Another Portugal style coup in the event of no clear winner? As I said, not a good time for European democracy.

    • Hi Pavlaki

      The problems with democracy these days is something we have discussed on here more than a few times. Plainly it is not going well but I did not want to open fire too much until the opposition has the chance to vote this down. I am wondering if the EU establishment hopes that the coalition of the left will run out of steam and passion in the way that Syriza did in Greece.

      But the establishment seem to want to gather ever more power and that is true in the UK as well. The new surveillance bill wants to give the police the right to track individuals online history for example.

    • Germany’s anti-Euro political party, the AfD, was also quickly taken apart by the establishment – especially the mainstream media, with breathtakingly biased reporting against the party in its early days. Finally being labelled extreme right and effectively forced to split-up (divide and conquer).
      The German muzzle has been very effectively ingrained since the second world war – anything disagreed with here, the latest disaster being the immigrant tsunami, you’re called a nazi, which silences the voices of dissent very effectively, but doesn’t actually help with discussions about very real problems.

  3. Hi Shaun

    One thing you don’t mention is unemployment where Portugal has a youth unemployment rate of around 31% and a general rate of 11%. However, there are many who believe these are seriously “fiddled” statistics and that the actual rate is much higher. Hysteresis may be difficult to measure but I’m sure it exists, particularly where you have a youth unemployment rate of 31% and north. This is something the improving GDP statistics do not capture and may well lay heavily on economic potential for years to come.

    As with a number of the Club Med countries, and notwithstanding the improvement in GDP, the only way they will escape the low growth/ stagnation situation is by exiting the Euro.

    Also, as Pavlaki has said above, the democratic situation in Portugal seems to be conforming to the EU norm – that is it is disappearing under the incubus of the Euro and this cannot be good for political stability. Although most Portugese probably do not see things this way, an outsider would be forgiven if they were to conclude that countries such as Portugal would be better off outside the EU, both economically and politically as things are now.

    • Hi Bob J

      Pretty much every country we discuss has issues with its labour market numbers and yes I have heard the rumours about the Portuguese ones too. Over the year to September unemployment has fallen from 686.5k to 620.6k so welcome but slow progress. However the level of youth unemployment has not performed as well because it has risen in the last two months and is 31.3% as you say or 118.4k.

      I have thought that Portugal would be better off outside the Euro for some time now.

  4. So the EC are saying that excessive endebtedness is the problem. Maybe the Portugese government can issue one of those European Arrest Warrants for the guilty party to be sent back to Portugal for trial …. He should be easy to locate in Brussels …..

  5. Hi Shaun,

    Have been travelling in / through Poland and it’s a very pleasant experience with hotels better and cheaper than Germany. The cleanliness and tidy pleasant appearance of the streets, towns and cities puts England to shame.

    Following it’s freedom from communism, Poland reformed early and harshly. The changes and progress is impressive. Debt to GDP is manageable. Poland also suffers emigration of it’s best and brightest.

    The question is how/why are these poor Eastern European economies doing better than many of their Western European counterparts ?

    • Hi ExpatinBG It’s not freedom from “Communism” which set Eastern Europe’s economies free, it was overthrowing burgeoning bureaucracy.
      Sound familiar?

      • Ask a Pole, they say they only gained their post world war 2 freedom in 1990. Communism was done in the name of the proletariat, Solidarity was the workers rejecting communism.
        Communism wasn’t just bureaucracy, it was snitching -the stasi operated domestic security much like the gestapo. it was corruption – Bundesrepublic traffic police do not take bribes, East German police routinely demanded bribes and held total power/terror over all motorists. Communism was gulags and murder on the Berlin wall. Communism was needing to pay bribes to get your medical treatment, despite communist proclamations of free medical care for all.

        The Portugese will get to vote for a new president within 6 months. No Portugese are sent to a gulag for opposing the current govt.

        A cursory glance at historical facts discredits your claim about just bureaucracy. And your claim fails to explain why Eastern Europe is doing well, while economic misery befalls Greece, Portugal and so on.

        • “And your claim fails to explain why Eastern Europe is doing well, while economic misery befalls Greece, Portugal and so on.”

          I thought therrawbuzzin explained that i.e. Greece, Portugal etc are part of a great Euro bureaucracy. The autocratic Communism you describe is Russian and Chinese. Funnily enough it also describes the Tszarist regime, Xing dynasty and Republican China which preceded Russian and Chinese communism.

          Whilst Marx, Engels, Lenin and Trotsky all seemed to believe in a situation whereby a revolutionary class (e.g. the proletariat) would pursue it’s own goals making no compromise (killing those who oppose it for instance) this is not how Communism has to be.

          You may be confusing “communism” with Russian and Chinese national behaviours and culture.

        • Hi Noo,

          Poland, Czech, Hungary and Slovakia are EU members who have the same euro-bureaucracy. Why are they doing well inside the EU, and Portugal, Greece not doing well due to same euro-bureaucracy ?

          PS. Communism is impossible without totalarianism, as shown by East Germany losing it’s workforce. Workers defecting at excessive rate caused the need to construct the evil murderous Berlin wall

        • That totalitarian requirement is proving more and more necessary in the EU.
          “Fakelakia” are de rigeur in Greece for everything from seeing a doctor upwards.
          Corruption is endemic in Portugal and Spain, and you have talked about it in Bulgaria yourself, ExpatinBG.

          Once again you are talking human (mis)behaviour, and it happens wherever there is the opportunity, and that is far from limited to Soviet “Communism”.


          EU Anti -Corruption Report POLAND — ANNEX


        • Hi Expat, your points about Hungary et al are well made but then so are therrawbuzzin’s points about misbehaviour happening wherever it gets a chance to.

          I’m refining my view which is now that Communism , or indeed capitalism or corporatism (which is what I think most of the advanced western economies suffer from) does not have to be bad – it’s humans who make these ideological concepts bad in their implementation.

          P.S. Russia is now allegedly “Capitalist” yet bribery, corruption. people being “disappeared” continues – plus ca change.

  6. Growth in C.Rep and Hungary (where corruption is endemic) are both below EU average, whilst Slovakia has been World Bank and EU sponsored since the velvet divorce.

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