Daily Management Review

Is Portugal Going to Become New Greece?


07/08/2015


For Europe, the main topic of today is Greece, but there are also problems in other peripheral countries. If the Greek crisis starts to unravel, then they will suffer first.



AP Photo/Armando Franca
AP Photo/Armando Franca
Portugal may be the first in the queue. Several years ago, the authorities were forced to take austerity measures. As a result, the deficit was reduced to 9.7 billion euros, the cost - to 5.2 billion euros, while revenue rose to 4.5 billion euros from 2010 to 2014.

Nevertheless, the IMF believes that the authorities' efforts are focused more on increasing revenues than on cutting costs.

The introduction of new taxes, increase existing - all of this helped reduce the deficit, but the IMF wants to achieve stronger spending cuts. Now costs decreased from 49.1% of GDP in 2010 to 48.1% in 2014, while revenues increased from 40.6% to 44.5 of GDP.

Basically, this was achieved by increasing the tax burden and changes in VAT.

From 2012 to 2013, the tax revenues have grown by 13.2%, and for some types of growth, it was more than 35%. In 2012, a tax amnesty has helped greatly. However, in subsequent years, the growth has also continued.

But, nevertheless, increased income does not cancel the need for a strong reduction of costs. The public sector has been greatly reduced.

Weight reduction in staff costs in GDP was quite noticeable: from 12.8% in 2011 to 11.8% in 2014. At the same time, the number of employees of the central government, regional and local authorities has fallen by more than 70 thousand men for 4 years.

Despite all the efforts, Portugal could not achieve the desired deficit objectives, therefore, the European Commission and the IMF reviewed them several times.

Nevertheless, the reduction looks very impressive. In 2011, the figure was 7.4%, and this year the government expects it at 2.7%, but Brussels and the IMF doubts that the plan will be easy to implement.

All these indicators look good only if you forget about unemployment. The labor market suffered the most, and the effects were felt all the last four years.

Governments and international institutions could not hide his surprise when unemployment peaked at the beginning of 2013, largely exceeding forecasts.

From I quarter of 2011 to the II quarter of 2015, the number of employed population decreased by 298 thousand man. Nevertheless, in 2015, they are beginning to celebrate small improvements, but the number of employed still remains below 4.5 million.

Unemployment during the reform reaches a level that nobody has ever seen in Portugal. In I quarter 2013 figure was 17.5%. After that, the situation has improved slightly, amounting to 13.7% now, but it is still above the 12.4% in I quarter of 2011.

Despite the recovery in comparison with the most difficult period, the labor market is still experiencing great difficulties. And the most serious problem is youth and long-term unemployment.

In 2011, unemployed young people between the ages of 15 and 24 years accounted 28% of the total, this is the highest level. But four years later, the figure was 34.4%. It is better compared to 42.5%, but still a lot.

Another problem is a huge number of those who are looking for a job for more than a year. In 2011, the figure was 53% of the 673 thousand unemployed, and now the figure is 64.5% of the 719 thousand.

The increase in unemployment was accompanied by changes in the rules of social protection and benefits.

Most recently, it was believed that the recovery of the labor market will lead to a drop in the number of people receiving benefits. Nevertheless, a strong increase in long-term unemployment is unlikely to lead to a real drop in the number of such people.

This huge unemployment may be the main trigger for large-scale performances and protests, especially if Greece is able to achieve their own goals, reducing the debt burden. It is unlikely that the Portuguese citizens refuse such an opportunity, because it is unlikely to be worse.

 






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