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April 8, 2013

'The Commission on Portugal: Is This for Real?'

"Gloomy European Economist" Francesco Saraceno on Portugal:
The Commission on Portugal: Is This for Real?: A quick note on Portugal. Let’s start from three facts:
  • Austerity did not work. Portugal is in a recessionary cycle. The economy will shrink by 2.3 per cent this year, more than twice as much as the previous government forecast (and the slowdown of exports to the rest of the eurozone is not helping).
  • Austerity is self defeating: the deficit-to-GDP ratio widened from 4.4 per cent in 2011 to 6.4 per cent last year, and is forecasted to be 5.5 per cent in 2013. Far above the target of 3 per cent that the government had agreed with the Troika. My guess is that it will be even larger than that.
  • The magic wand of confidence is not magic. The budgetary cuts did not boost private spending, and expectations remain gloomy. The Financial Times article cites the Portuguese daily Público writing “Portugal has entered a recessionary cycle. People have no reason to believe the future will be any better. The [adjustment] programme has failed and has to be changed.” So long for the confidence fairy…
Is this surprising? Not at all. .. Can anybody not blinded by ideological faith in expansionary fiscal contractions believe that austerity today is not self-defeating? And yet, today we were  given the opportunity to read the  statement by the European Commission on Portugal. ...
To summarize, the Commission is happy that the Portuguese government chose to ignore a ruling of its constitutional court (“welcomes that…”); it threatens to cut funding if the Portuguese government does not follow its prescriptions (“it is a precondition for a decision…”); it is in a state of denial on confidence (“the growing investor confidence…”); it recommends that democratic discussion does not take place (“it is essential that key political institutions are united in their support…”)
This goes beyond my wildest thoughts. I checked, and nobody moved April fool’s day to April 7th. This is for real, and it needs no additional commenting…

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