Pedro had done all that teacher told him and much more.
He had tightened his belt not two but three times.
He was to sell twice as many family jewels as needed.
A more dedicated pupil you could not find.
But to no avail.
Less than a week after he shined that apple until it sparkled, his hopes of becoming teachers’ pet were dashed.
The independent inspector has marked him down and he’s in the naughty corner.
Portugal’s new Prime Minister Pedro Passos Coelho may well be feeling like a keen school child who has been unjustly scolded.
After all, it was barely a week ago that he unveiled austerity plans that he described as “more ambitious” than the devastating demands of the “troika” of the European Union, European Central Bank and IMF to cut the budget deficit and release their financial rescue package.
Lisbon’s plans, applauded in Brussels, Frankfurt and Washington, included a surprise draconian one-off tax on workers worth half of the extra one month’s pay they receive as a December bonus.
They also included the abolition of the “golden-share,” the equity stake held by the government in enterprises considered strategic for the nation.
This extra show of willing, Passos Coelho argued, would create “a wave of confidence in the markets.”
Well so much for that.
On Tuesday, Moody’s downgraded the country’s sovereign debt to junk status.
The US rating agency cited “heightened concerns” that Portugal would not be able to meet the deficit-reduction targets it has agreed to in the rescue package.
This was because of the “formidable challenges” facing the government to cut spending, increase tax revenue, lift economic growth and support the banking system.
The Portuguese Communist Party, which opposed the €78 billion bailout because of the punishing strings attached, slammed the rating agency’s decision.
Moody’s “lacked credibility” for having failed to notice the global financial crash of 2008, so countries should stop submitting to their “blackmail.”
The other parliamentary party opposing the bailout, Left Bloc, pointed out that the downgrade proved that tough austerity measures taken over the past year were not the solution to the country’s difficulties.
Portugal is in need of a genuine rescue strategy.
The banks, European and global institutions are clearly not offering one.
The government, only just elected, isn’t either.
But as it happens the CGTP trade union confederation launched its own earlier this week.
Its basic critique was that 20 years dominated by laissez-faire political thinking that private is good, public is bad has ruined the public finances.
The gradual withdrawal of the state through privatisations and neglect of industry, public services and quality employment has drastically eroded the country’s competitive base, leading to the past decade of very slow growth that under the current austerity plans will simply get slower.
According to the CGTP’s figures, in 1990-2010 public debt tripled, yet this was the period when the lion’s share of state assets were sold off, ostensibly to reduce the debt.
The spreading red ink was partly caused by a 60 per cent fall in income from publicly owned industries and partly due to the diminishing returns from privatisation – a problem that will escalate with the expected fire sale over the next 12 months of the national airline TAP, one of the television channels of state-owned broadcaster RTP and stakes in energy company EDP-Energias de Portugal SA and power-grid operator REN-Redes Energeticas Nacionais.
The CGTP argues that it is time for policies that develop local demand for goods for services. Higher wages play an important role in this.
One analyst at bank Credit Suisse argued on hearing news of Moody’s downgrade that workers’ wages – already facing a reduction this year – needed a further 5 to 10 per cent cut to boost the country’s growth and competitiveness.
But Portuguese workers are among the poorest in the European Union and by international standards their wages represent a pretty small part of employers’ costs.
A large part of labour costs are generally employer social security contributions, but in Portugal these are well below the EU average, including booming Germany.
Plans to make it easier to hire and fire should also be shelved as insecure workers are reluctant consumers and there’s no evidence to suggest they are more productive, it says.
“Flexible” labour markets, like wage restraint, are promoted for boosting growth and competitiveness, but, the CGTP points out, France, with more “rigid” employment protection, according to OECD, has been growing faster than Portugal in recent years. European Commission forecasts suggest it will continue to do so.
What’s badly needed is investment in skills – for which Portugal has a poor record – and state support for sectors that can play a strategic role in the future of the economy, the CGTP says.
The CGTP knows the government won’t be listening – the centre-right premier opposed the former socialist administration’s cuts and no sooner was he in power than he took them further.
So it is organising a rolling programme of meetings and events in workplaces and other public spaces from July 16 to debate alternatives and engage its members, their families and communities.
It hopes this will be part of a concerted fightback.
But what of the growing likelihood of a sovereign debt default? The Portuguese Communist Party continues to call for a “renegotiation” of the foreign debt – that is, a managed rather than a chaotic uncontrolled default – that ensures the lenders, principally French and German banks, pay for their reckless risk-taking. A day of action on the debt is planned on July 24.