PORTUGAL’S borrowing costs have jumped to over 7%, meaning that it will shortly have to seek another IMF-EU bailout, by offering even more cuts at the same time as political tensions stoked up by the government’s existing austerity measures, are reaching explosion point.
Yields on 10-year bonds have hit an intraday high of 7.9% before easing back, as the Lisbon stock market closed down by 1.6%.
Last Friday the opposition Socialists demanded a renegotiation of Portugal’s bailout terms, and a general election, with Socialist leader Seguro telling parliament: ‘We have to abandon austerity politics. We have to renegotiate the terms of our adjustment programme. The prime minister has to recognise publicly that his austerity policies have failed.’
This was after the Portuguese crisis sharpened last week after Paulo Portas, leader of the junior coalition party, resigned as foreign minister, less than 24 hours after Vítor Gaspar also quit as finance minister amidst mass strike actions by workers, nurses and teachers in opposition to the austerity policies.
Already, the review of the Portuguese bailout by its creditors – which was due to take place today – has been postponed at the the behest of the Portuguese government, which does not want it till the end of August.
Portugal has already received a 78bn-euro bailout, but the terms of the ‘rescue’ have caused the biggest economic slump since the 1970s with unemployment reaching a record 18%.
Portugal’s president Aníbal Cavaco Silva has called for a ‘national salvation’ agreement between the ruling coalition and the main opposition Socialist party in an attempt to ‘restore calm’ following the resignation of the two senior ministers.
Cavaco Silva had been expected to endorse a cabinet reshuffle proposed by Pedro Passos Coelho, the prime minister, in a bid to avert a snap election and heal a rift between the two coalition parties that had threatened to bring down the government and derail Portugal’s bailout.
Instead, the president called on the two government parties and the Socialists, the main opposition party, to hammer out a ‘medium-term agreement’ to ensure ‘the governability of the country, the sustainability of public debt and the control of external accounts’.
Talks on the proposed cross-party pact will however further delay planned negotiations with Portugal’s international lenders and could delay approval of the 2014 budget. This would make it more likely that Lisbon will need additional international support with even tougher conditions attached after the current bailout.
President Silva has asked the troika of international lenders – the European Commission, the International Monetary Fund and the European Central Bank – to carry out its next two quarterly reviews of Portugal’s progress with the bailout’s austerity measures simultaneously in September to ensure the programme could be completed on schedule despite the ‘current political situation’.
This plan requires the Socialist party opposition leader Antonio Seguro to support 4.7bn euros of planned spending cuts and the laying off of tens of thousands of state workers, measures that he has vehemently rejected until now.
It is being put to him that if he carries on with his campaign for an immediate election and refuses to act along with the other two parties he will be responsible for the destruction of the Portuguese economy and the revolutionary explosion of the masses that will follow.
Despite this rapidly approaching storm, Draghi, the president of the European Central Bank (ECB), is still declaring: ‘The results that have been achieved by Portugal have been quite significant and remarkable, if not outstanding.’
In 2011 the budget deficit in Portugal was 7%. The following year, the government cut pensions and public sector wages by the equivalent of two months’ income. In the case of public employees, this was a second reduction. At the same time, there was a brutal increase in taxes.
As a result unemployment rose to the unprecedented level of 18%, which forced an increase in spending on unemployment benefits. Tax revenues dropped. The budget deficit did fall, to 6.4%, far less than is necessary.
Meanwhile, Portugal’s Constitutional Court has created a further political crisis by ruling that wage and pension cuts for public employees and retirees are unconstitutional.
Now the figures are out for the first three months of 2013: the budget deficit was 8.8% of GDP. The troika – the ECB, the European Commission and the International Monetary Fund have been confounded. Demands for more cuts are now being made, including the freezing of all government spending for two or more years.
However, there is only one way out of this crisis for the Portuguese workers, and that is to bring down the coalition with a socialist revolution, and to join hands with the workers of the EU to bring it down and replace it with the Socialist United States of Europe.
