In May 2011, in the midst of a financial crisis, Portugal he made a deal with the European Commission and accepted a bailout program: the agreement provided for the country to receive 78 billion euros from the European Union and the International Monetary Fund (IMF) divided into a maximum of 14 installments, committing in exchange to approve a series of rather incisive reforms which would have restored the country’s public finances but also had a profound social impact, greatly reducing worker protections and introducing new taxes. It is no coincidence that they were greeted with rather turbulent protests.
At that time the Portuguese deficit, that is, the annual deficit between income and expenditure in the state budget, was over 9 percent of GDP (gross domestic product), more than six points above the limit set by European rules. The Italian one, in 2011, was 3.9 percent. The Portuguese public debt, i.e. the deficit accumulated over the years, was around 120 percent of GDP, in line with the Italian one and approximately double the threshold considered sustainable by the European institutions.
Twelve years later, Portugal achieved a historic objective: the reduction of public debt below 100 percent of GDP, with a drop of 35 points in 4 years. The result was recently celebrated by the European Commissioner for Economic Affairs Paolo Gentiloni. In 2023, for the first time in almost fifty years, Portugal achieved a surplus of more than half a percentage point, that is, it closed the budget in surplus, and with a growth of over 2 points of GDP. The European Commission predicts for the country a growth of 1.3 and 1.8 points of GDP for 2024 and 2025. Italy closed the year with a deficit budget of 5.3 percentage points and a debt of 140 percent, with growth expected between 0.9 and 1.2 percent between 2024 and 2025, below the European average.
What today appears to be a success story, often pointed to by supporters of austerity policies as a virtuous example, has nevertheless had its ups and downs. The prime minister who negotiated the agreement with the European Union, Pedro Passos Coelho, was a conservative, leader of the Partido Social Democratico (PSD), and accepted conditions which, although less drastic than those suffered by Greece in that same period in within the scope of a similar financial assistance program, were nevertheless challenging.
A particularly significant figure, among others, is the deficit: forecast at 5.9 percent at the beginning of 2011, it ended up growing uncontrollably well beyond the government’s expectations, to the point of exceeding 9.1 percent in the forecast made in mid-April. In short, it had increased by more than half in the space of four months. Passos Coelho’s centre-right government agreed to reduce it by a third over three years, bringing it to 3 percent in 2013.
To do this, Passos Coelho initiated rather painful reforms for the Portuguese population within a few months. The increase in VAT (the value added tax that affects consumption) and the tax burden on incomes; the freeze on salaries in the public sector, which has also been hit by massive layoffs of almost 30 thousand people and by the increase from 35 to 40 hours of work per week. Three days of holiday per year were then eliminated and solidarity contributions were introduced, i.e. deductions from pensions above 1,350 euros. Passos Coelho also adopted a series of measures to introduce greater flexibility into the labor market: facilitating dismissal procedures and extending forms of precarious contracts. In the autumn of 2013, unemployment, also as a consequence of these measures as well as of the financial crisis throughout Europe, rose to an all-time high of 16.4 percent, 3.5 points higher than when the agreements with Europe in 2011.
The economist Carlo Cottarelli was director of the IMF’s fiscal affairs department between 2008 and 2013, and dedicated various analyzes to the Portuguese case. “There is no doubt that one of Portugal’s merits in adopting these adjustment policies was the ability to wait for the reforms to produce their benefits,” he says. «Even following an initial phase in which they inevitably contracted the economy».
In fact, since 2014, the country’s economy began to follow a different trend. In June of that year, and somewhat earlier than expected, Portugal exited the surveillance program with the European Union, which recognized the progress made in structural reforms. GDP returned to growth for the first time since 2010, with growth of 0.8 percent which then continued and became even more pronounced. Unemployment began to fall, already reaching 12.4 percent in 2015, lower than when the agreements were signed, and progressively falling to 5.8 percent in 2022, the lowest in the last twenty years. At the same time, social dissent had also waned.
«If we wanted to find specificities in the way in which Portugal has adopted these austerity policies», says Cottarelli, «one probably concerns bureaucratic simplification, on which the Portuguese governments have focused a lot, and which has made it possible to attract large amounts of foreign investment. The other has to do with the spending review [Cottarelli fu nominato proprio commissario per la revisione della spesa dal governo italiano di Enrico Letta nel 2013, ndr] which in Portugal they have done intelligently in a sectoral manner year by year: one year for healthcare, one year for justice, and so on”. This too, according to Cottarelli, contributed to making austerity acceptable for the Portuguese: «They perceived that the cuts actually reduced waste, and the reforms triggered virtuous processes».
This is why, in short, there have been no sensational social tensions in Portugal. Which is significant, if we consider the fact that in the meantime in other European countries affected by austerity policies, discontent translated into violent protests and fueled the growth of populist and Eurosceptic parties: the 5 Star Movement in Italy, Podemos in Spain, Syriza in Greece. In Portugal, however, no. “It is an anomaly which however has explanations,” says Elisabetta De Giorgi, professor of political science at the University of Trieste who has been studying Portugal for many years. «First of all, there is a sociological question: the Portuguese people historically tend to express a rather slothful and resigned protest, rather than an angry one. A silent dissent, in short, which is found for example in the notable increase in abstention.” In fact, turnout, which in 2005 was 64 percent, reached a historic low of 48 percent in 2019.
«Moreover, the Portuguese political framework already featured important anti-establishment parties, i.e. those of the radical left, which had never gone into government, and which had channeled much of the discontent against the policies of the conservative Passos Coelho», continues De Giorgi. «So what happened in November 2015 was in some way already a sensational event in itself».
In November 2015, in fact, the Socialist Party of Antonio Costa came to government, and it went there with those radical left parties: the Left Bloc (BE) and the Portuguese Communist Party (PCP). Here there is a third aspect that helps to explain the Portuguese case: to recap, the first was the sectoral spending cuts and the second the lack of aggressive and populist popular discontent.
The third aspect has to do with the ability and unscrupulousness of Antonio Costa, a politician with great experience and negotiating ability, already minister three times between 1997 and 2007. As leader of the left he had led the opposition to the policies of austerity of Passos Coelho, however in the meantime adopting them on a local scale while he was mayor of Lisbon (2007-2015), helping to restore the finances of his municipality. «His skill was convincing the radical left-wing parties to accept a government agreement which envisaged revoking some of the more severe measures adopted by Passos Coelho, without however in any way calling into question compliance with European constraints and treaties», explains De Giorgi. It was such a bold political agreement, initially, that it was finalized in Portugal contraptionthat is, literally a contraptionsomething botched and precarious.
In this Costa was also indirectly helped by the President of the Republic, Aníbal Cavaco Silva, who was initially skeptical in entrusting him with the government role. After having in fact attempted to favor a centre-right or broad coalition government, Cavaco Silva promoted Costa’s left-wing government by making compliance with the debt reduction agreements made with the European Union as a condition. «In reality, Costa effectively used these constraints to keep the complaints of the BE and the PCP at bay, defusing their more radical proposals», says De Giorgi. He thus also managed to reassure the financial markets, which were initially critical of this government option.
In this context, and benefiting from the economic recovery that was consolidating in the meantime, Costa was able to reintroduce some of the social protections abolished in previous years (he increased the minimum wage and vacation days, reduced weekly working hours and the retirement age), without, however, deviating from the virtuous financial rigor initiated by Passos Coelho’s Portugal. However, Costa also maintained a form of austerity to some extent, for example by reducing public investments in infrastructure or defunding healthcare. De Giorgi, with other scholars, he defined in one of his searches for «hidden austerity» this particular Costa policy.
When the intolerance of BE and PCP became too much, Costa decided to do without the direct alliance with the radical parties without ever losing power. After the 2019 elections he formed a new minority government by negotiating the support of BE and PCP on the various individual measures; then, after a further crisis with the Left Bloc and the Communists, in 2022 he won the elections again, creating a socialist monopoly, therefore a more stable government made up only of members of his own party. All while remaining prime minister, for over eight years until November 2023, when he resigned following a judicial investigation for corruption involving his government, pending the new elections scheduled for March.
Despite the political crisis, on 17 November the rating agency Moody’s expressed a particularly positive opinion on Portugal, promoting the country’s rating by two levels, i.e. the degree of reliability of its public debt, bringing it from Baa2 to A3, recognizing the validity of the economic reforms adopted and the commitment to reducing public debt and strengthening the banking sector. On the same day, Moody’s confirmed Italy’s rating at Baa3, three levels lower.
In recent years, compared to the many reforms adopted by Portugal to stimulate growth and reduce debt, in Italy there has been talk above all of the substantial tax breaks that country has granted to foreign pensioners, to convince them to move there. The leader of the League Matteo Salvini he has longed for several times to adopt that same measure in the regions of Southern Italy. Portugal since the beginning of this year he abolished tax breaks for foreign pensioners.