Portugal: it’s the demography, stupid!
Michael Marder, in a recent piece for Al-Jazeera entitled €Is Portugal Hopeless?€, cited Michael Darda, chief economist at MKM Partners, who described Portugal €" alongside Greece €" as €too hopeless€ to be helped by the European Central Bank.
According to Marder, €The hopelessness of Portugal, from the perspective of the economists, has to do with what they call €structural problems€: a small internal market, the absence of natural resources, bureaucracy that suffocates innovation, an insufficiently qualified workforce with low productivity levels, a poorly functioning legal system and so forth.€
Marder added that, €Deep budget cuts to education will ensure the non-competitiveness of the Portuguese workforce in the foreseeable future and tax increases combined with salary cuts will further erode internal demand for nationally produced goods.€
Today 15% of the population are unemployed, while 27.8% of young people are out of work. The country's budget deficit is about 4.5% of GDP. The government is reducing spending and raising taxes to comply with the terms of a 78bn euro bailout from the EU and IMF. The economy is predicted to contract by 3.4% in 2012.
Portugal raised 1.5bn euros in a pair of debt auctions at a manageable cost last week, which could be a sign of investor confidence at the bailout programme of spending cuts and economic reforms.
The only alternative for Portugal €" like Greece €" is to default on its loans, something which sends shivers down the spines of politicians in Paris, Brussels and Berlin.
Greece's sin was fiscal laxity, Ireland's an almighty property binge and both countries enjoyed fast growth when credit was cheap. As The Economist put it, Portugal had a brief growth spurt in the run-up to joining the euro in 1999, as its borrowing costs fell. But the country has seen a gradual loss of wage competitiveness since then.
This is reflected in Portugal's large current-account deficit and a lost decade for the economy. Feeble growth has made it hard to keep public finances on track. The budget deficit has averaged 4.6% of GDP in the past decade.
The steady flow of cheap credit has pushed the country's net foreign debts to more than 100% of GDP. Much of the foreign borrowing is channelled through local banks, whose credit lines depend on the standing of the state. The banks have been all but frozen out of capital markets since Portugal's sovereign debt was downgraded in 2010 and are heavily reliant on the ECB.
Portugal's problems €" like most of Europe €" will not be fixed by austerity however. The country's fertility rate is 1.39, lower even than Germany's and Greece's. In other words, even without net emigration it is going to lose well over a million workers.
Now the country is in recession and with no hope of future growth, not only is Portugal no longer much of an immigrant magnet but the Portuguese themselves are leaving. Around 6.5% of the 10 million population left between 1998 and 2008, with the World Bank warning of a crisis as far back as 2006.
Between 2009 and 2010, the number of Portuguese registering at Brazilian consulates went up by 60,000, according to the BBC's Lucy Ash. While in 2006 only 156 Portuguese got visas to the old African colony of Angola, by 2010 that figure was 23,787.
Between 2009 and 2011, there was a 4.8% increase in Portuguese moving to Australia, 6.3% increase in Portuguese moving to America and 16% increase in Portuguese moving to Canada. In a reversal of established trends, a civil engineer in Angola now earns 4 times what they would in Portugal.
Unlike previous emigration, those who are leaving Portugal and other European countries are mainly young, single and educated to graduate level. 1 in 10 graduates now leave Portugal, leading to a drain of the brains needed to rebuild the country.
Back in 2011, Prime Minister Coelho told young teachers to emigrate. The call provoked indignation in Portugal although it seems the trend is gathering pace. 120,000 people left Portugal in 2011 and around 91,000 Portuguese now live in Angola.
According to Brazil's National Secretariat of Justice, the number of Portuguese applications for permanent residence rose from 276,703 to 328,856 between December 2010 and June 2011. That is aside from the innumerable temporary work, study and research visas issued.
Pathetic attempts are being made across Europe to paint emigration as a positive. Joana Gorjao Henriques €" writing in The Guardian €" claimed that emigration of the young €might just herald the emergence of a more self-sufficient, curious, and less spoiled generation.€
But that hardly benefits Portugal unless these young people return and, so long as the brightest and best keep leaving, the very recovery which depends on them will not happen.
As Marder argued, Portugal has €built certain aspects of its national identity around the incompletely mourned loss of the Empire. The notion that a €Golden Age€, the so-called Age of the Discoveries, lies in a distant past and that, thenceforth, Portuguese history has been one of gradual decline and decadence is strongly ingrained in the people's psyche.€
Even if the debt is stabilised, the private sector must grow so Portugal is no longer reliant on borrowing and government spending. But that cannot happen if the brightest and best keep leaving and is further hampered by this historically Catholic country's low fertility rate. It's not the economy, stupid! As in most of Europe €" it's the demography, stupid!
According to Marder, €The hopelessness of Portugal, from the perspective of the economists, has to do with what they call €structural problems€: a small internal market, the absence of natural resources, bureaucracy that suffocates innovation, an insufficiently qualified workforce with low productivity levels, a poorly functioning legal system and so forth.€
Marder added that, €Deep budget cuts to education will ensure the non-competitiveness of the Portuguese workforce in the foreseeable future and tax increases combined with salary cuts will further erode internal demand for nationally produced goods.€
Today 15% of the population are unemployed, while 27.8% of young people are out of work. The country's budget deficit is about 4.5% of GDP. The government is reducing spending and raising taxes to comply with the terms of a 78bn euro bailout from the EU and IMF. The economy is predicted to contract by 3.4% in 2012.
Portugal raised 1.5bn euros in a pair of debt auctions at a manageable cost last week, which could be a sign of investor confidence at the bailout programme of spending cuts and economic reforms.
The only alternative for Portugal €" like Greece €" is to default on its loans, something which sends shivers down the spines of politicians in Paris, Brussels and Berlin.
Greece's sin was fiscal laxity, Ireland's an almighty property binge and both countries enjoyed fast growth when credit was cheap. As The Economist put it, Portugal had a brief growth spurt in the run-up to joining the euro in 1999, as its borrowing costs fell. But the country has seen a gradual loss of wage competitiveness since then.
This is reflected in Portugal's large current-account deficit and a lost decade for the economy. Feeble growth has made it hard to keep public finances on track. The budget deficit has averaged 4.6% of GDP in the past decade.
The steady flow of cheap credit has pushed the country's net foreign debts to more than 100% of GDP. Much of the foreign borrowing is channelled through local banks, whose credit lines depend on the standing of the state. The banks have been all but frozen out of capital markets since Portugal's sovereign debt was downgraded in 2010 and are heavily reliant on the ECB.
Portugal's problems €" like most of Europe €" will not be fixed by austerity however. The country's fertility rate is 1.39, lower even than Germany's and Greece's. In other words, even without net emigration it is going to lose well over a million workers.
Now the country is in recession and with no hope of future growth, not only is Portugal no longer much of an immigrant magnet but the Portuguese themselves are leaving. Around 6.5% of the 10 million population left between 1998 and 2008, with the World Bank warning of a crisis as far back as 2006.
Between 2009 and 2010, the number of Portuguese registering at Brazilian consulates went up by 60,000, according to the BBC's Lucy Ash. While in 2006 only 156 Portuguese got visas to the old African colony of Angola, by 2010 that figure was 23,787.
Between 2009 and 2011, there was a 4.8% increase in Portuguese moving to Australia, 6.3% increase in Portuguese moving to America and 16% increase in Portuguese moving to Canada. In a reversal of established trends, a civil engineer in Angola now earns 4 times what they would in Portugal.
Unlike previous emigration, those who are leaving Portugal and other European countries are mainly young, single and educated to graduate level. 1 in 10 graduates now leave Portugal, leading to a drain of the brains needed to rebuild the country.
Back in 2011, Prime Minister Coelho told young teachers to emigrate. The call provoked indignation in Portugal although it seems the trend is gathering pace. 120,000 people left Portugal in 2011 and around 91,000 Portuguese now live in Angola.
According to Brazil's National Secretariat of Justice, the number of Portuguese applications for permanent residence rose from 276,703 to 328,856 between December 2010 and June 2011. That is aside from the innumerable temporary work, study and research visas issued.
Pathetic attempts are being made across Europe to paint emigration as a positive. Joana Gorjao Henriques €" writing in The Guardian €" claimed that emigration of the young €might just herald the emergence of a more self-sufficient, curious, and less spoiled generation.€
But that hardly benefits Portugal unless these young people return and, so long as the brightest and best keep leaving, the very recovery which depends on them will not happen.
As Marder argued, Portugal has €built certain aspects of its national identity around the incompletely mourned loss of the Empire. The notion that a €Golden Age€, the so-called Age of the Discoveries, lies in a distant past and that, thenceforth, Portuguese history has been one of gradual decline and decadence is strongly ingrained in the people's psyche.€
Even if the debt is stabilised, the private sector must grow so Portugal is no longer reliant on borrowing and government spending. But that cannot happen if the brightest and best keep leaving and is further hampered by this historically Catholic country's low fertility rate. It's not the economy, stupid! As in most of Europe €" it's the demography, stupid!