Portugal: right wing government’s austerity cuts prepare social explosion

As Portugal’s right-wing government announced the harshest austerity cuts in the country’s history, economic forecasts were revised down and the main trade union confederations CGTP and UGT announced the calling of a general strike.

Among the measures proposed in the 2012 budget which was presented to Parliament on Monday, October 17, is the cutting of Summer and Christmas bonuses worth a month’s wages each for civil servants earning over 650 euro a month (which will mean a 20% cut in income), increases in VAT for certain goods (in some cases from 6% to 23%), an extension of the 5% salary cut for civil servants into 2012, cuts in pensions, a 50% cut in pay for overtime and a proposal to allow businesses to lengthen the working day by 30 minutes without any additional pay.

The government expects to achieve spending cuts to the tune of 4.4% of GDP and revenue increases equal to 1.7% of GDP. The budget also includes a massive privatisation plan for 2012 to raise 4 billion euros. This includes the sale of the national airline TAP, airport managing company ANA, the freight transport branch of the railways CP, and the postal service CTT, next year, as well as selling off stakes in the power and electricity companies EDP and REN, this year.

Even if all these measures are passed and implemented, Portugal’s debt will still reach 100.8% of GDP this year (up from 93.3% in 2010) and increase to 106.8% in 2013, before it starts to be reduced. The government intends to cut the budget deficit from 9.8% of GDP in 2010, to 5.9% in 2011 and 4.5% in 2012, before reaching the EU limit of 3% in 2013.

However, as the first news of these massive austerity cuts were being announced, the economic forecasts were already revised down, both for 2011 and for 2012. Portugal’s GDP is now expected to contract by 1.9% in 2011 and a by 2.8% in 2012 (up from an earlier estimate of 2% in May at the time when Portugal agreed a bailout plan with the European Union). This would be Portugal’s worst recession since 1975. These measures come on top of already savage austerity cuts implemented in the 2011 budget by the former Social-democratic government and which were agreed as part of the 78 billion euro EU bailout plan.

Even as the government presented its budget proposals, EU Economic and Monetary Affairs Commissioner Olli Rehn warned that these cuts might not be enough, pointing out how Portugal was on course to a 2011 budget deficit equal to 8.3% of GDP, instead of the 5.9% which had been agreed as part of the bailout. This means a further 3.4 billion euros’ worth of cuts or additional revenue were needed.

The government is heavily relying on increasing the country’s exports in order to meet its targets, forecasting a 4.8% increase in exports for 2012. However, the bleaker economic prospects for the rest of Europe and the world economy as a whole make this a very optimistic target. Unemployment, which was 8.3% in 2006, is expected to reach 13.4% next year.

Furthermore, families are being asked to pay the bulk of this savage adjustment plan (6.2 billion euro or a 5% across the board cut in living standards), followed by the state (3.2 billion euro worth of cuts) and with the capitalists only contributing 650 million euros in increased taxes and cuts in subsidies. Overall, state expenditure in social subsidies will be cut by 4.3% and the state wage bill will be reduced by nearly 15% through wage reductions, redundancies and cuts in bonuses. Most of the increased revenue from taxation will also come from increases in VAT which hit working people hardest.

The problem is that, like in Greece, these massive cuts will have the effect of contracting internal demand and therefore further aggravating the recession. The Finance Ministry itself foresees a steep contraction of private consumption of 3.5% this year and 4.8% next year.

Rui Barbara, an economist at Banco Carregosa was quoted by Reuters warning that these measures can have the effect of making the recession worse: “On the one hand one can understand the government's plan to try to highlight that we are different to Greece but on the other hand there is the risk of a snowball effect with more recession, lower revenues and a tougher downturn.” The “markets” share this pessimistic view and already in July Moody’s downgraded the rating of the Portuguese debt to the level of junk bonds.

Pedro Passos Coelho. Photo: PDS/ Luis Saraiva Right-wing Prime Minister Pedro Passos Coelho is confident that this budget will be passed by parliament where his ruling coalition won a comfortable majority after the June 5^th elections. Between the “Social Democratic” (right wing) and the Peoples’ Party he controls over 56% of the seats in Parliament. The election results, where the Socialist Party (Social Democrats) of former prime minister José Socrates were heavily defeated, created a mood of confidence in the ruling class that the right-wing government had a clear mandate to implement these austerity policies.

This is a complete misreading of the situation. As a matter of fact, the defeat of the Socialist Party whose votes went down from 36 to 28%, losing about 1/3 of its votes, was precisely the result of its implementation of austerity policies which had been met with fierce resistance in the streets, including a general strike in November 2010 (The general strike and the tasks of the left). The left parties were unable to capitalize on this opposition. The Communist Party only narrowly held on to its vote at 7.9%, while the Bloco de Esquerda, BE, lost nearly half of its votes (from 9.8% to 5.1%). Unfortunately, the leadership of neither of these two parties offered a clear alternative to the serious economic situation that Portugal is facing. The most radical measure that they advocated was an “auditing” of the debt and its “renegotiation.” In reality, faced with an extreme economic crisis, the only alternative to massive austerity is a clear socialist programme, starting with the repudiation of the debt and the nationalisation of the banks and key sectors of the economy. Anything short of that was seen as not realistic. After all, Greece is “renegotiating” its debt with the troika and all it has meant is even further austerity cuts.

In the case of the BE, which had achieved an excellent result in 2009 on the basis of appearing as a clear alternative to the left of social-democracy, its leadership and elected members of parliament and members of the European Parliament have come under strong pressure from bourgeois public opinion which led them to vote in favour of the Greek bailout (Bloco de Esquerda votes for Greek bailout loan) (which means nothing else but massive austerity cuts), in favour of the bombing of Libya, etc. Its support for the Socialist Party presidential candidate in January this year, the same SP which in government was implementing austerity cuts, did not do them any favours. The BE does not have the same social roots in the working class as the Communist Party, and therefore a large part of the radical protest votes it attracted in 2009 were now lost.

Some sections of the population, faced with the realization of how deep the economic crisis really is, and with the lack of any serious alternative to the left, decided to vote for the right-wing Socialdemocratic Party of Passos Coelho, as a “strong” option to deal with the crisis. However, it would be completely wrong to interpret the election results (with a historically low turnout) as an indication of solid and lasting support among the majority of the population for an onslaught against the working class. On the contrary!

Already ahead of the budget proposals, the powerful Communist Party led CGTP trade union confederation called rallies against the austerity measures on October 1^st. On that day, 130,000 marched in Lisbon and another 60,000 in Porto, the country’s second largest city. One of the demonstrators, quoted by AFP, summed up the mood: “The people are quite disheartened. They no longer believe in anything and have given up… but they are starting to see the need to demonstrate against the policies of the government.”

October 15. Photo: Bloco On that day, the unions announced a series of strikes to take place between October 20 and 27. After seeing the details of the budget, the unions (CGTP and UGT) have announced a general strike, possibly for November 24, although a definite date has not yet been set. Revealing the mood of anger which has been created by the accumulation of cuts and austerity, in explaining the call for the general strike, CGTP leader Armenio Carlos made an appeal to use article 21 of the Constitution which says that “Everyone has the right to resist any order that infringes his rights, freedoms, or safeguards and to repel by force any form of aggression when recourse to public authority is impossible.” The fact that both unions are united in this action is also significant, as for two decades prior to the general strike last year there had been no unity of action.

On the October 15 global day of action, 40,000 people marched in Lisbon, as part of the movement known as “Geração à Rasca” (Generation in a tight spot). As a matter of fact, the Spanish movement of the indignados was preceded by a massive mobilization of the Portuguese youth on March 12, when, called by the Geração à Rasca initiative, hundreds of thousands of youth came out onto the streets all over the country (300,000 in Lisbon alone). This protest was an indication of the enormous accumulation of anger that was building up, but also of the fact that the traditional left parties and organizations were not really offering a channel to express it.

As an indication of how widespread opposition to these measures is, on September 28 there was a demonstration of off duty police officers protesting against pay cuts, but when on duty police tried to prevent them from reaching the Finance Ministry, they ended up joining their colleagues and marching together (video). The protest was part of a “week of indignation” called by the police officers’ union and professional associations.

Even more worrying from the point of view of the government is the protest movement in the ranks of the Army. In a press conference on October 14, the National Association of Sergeants (ANS) openly criticized the government’s austerity measures, particularly the cuts in Summer and Christmas bonus pay, which they said meant a “worsening of what was already a very difficult situation”. The president of the ANS, Antonio Lima Coelho warned that they are “at the service of the Portuguese people and not of any specific institutions,” and that “no one should think that the Armed Forces can be used in repression against social conflict that these measures might provoke”.

The ANS also announced that they have called a joint “national gathering” of the Armed Forces, involving the Sergeants Association, the Armed Forces Officers’ Association (AOFA) and the Association of Non Commissioned Officers (AP), on October 22 to discuss what protest measures they will take. When asked about a possible escalation of the protests on the part of the military, Lima Coelho replied that “revolutions are not forewarned, when they take place, they do because they have to,” although he added that he hoped “that, for the good of the State of Law, that such a scenario will not come into being”. These warnings are not to be taken lightly, particularly in view of the role played by the Armed Forces in the Portuguese revolution in 1974.

Both the Communist Party and the Bloco de Esquerda have announced their full support for the general strike called by the unions. Looking at the experience of Greece and the severity of the economic crisis in Portugal, a 24-hour general strike in and of itself would probably not be enough to force the government to back off, but would have to be part of a plan to take the struggle to a higher level.

The left parties also have the responsibility of offering a clear alternative to the austerity measures and the crisis of capitalism. Unfortunately, up until now, the response of the leadership of both the Communist Party and the Bloco de Esquerda has not gone beyond the limits of capitalism. The PCP leadership correctly identifies the austerity package as an assault on workers’ rights and living standards and a massive transfer of wealth towards Capital (Sobre a reunião do Comité Central do PCP). However, in a continuation of the failed two-stage theory, it insists on the fact that the measures imposed by the troika represent the economic colonization of the country and a loss of national sovereignty, and, following on from this analysis, propose a “patriotic struggle”, including not only the workers but also the “anti-monopolistic layers” in order to fight for a “patriotic and left-wing policy” for a “Portugal with a future”. The concrete measures proposed are in fact very vague (renegotiation of the debt, “economic development”, defence of “national sovereignty”, and a “fairer, more developed and sovereign Portugal”). None of this offers a concrete way out of the crisis of capitalism.

The leadership of the Bloco de Esquerda on its part is also correct in its criticism of the measures of the government, but when it comes to offering an alternative its proposals are very limited. These are centred around five points: 1) the implication of private creditors in the renegotiation of the public debt and its auditing; 2) the setting up of a “national rescue fund”, financed through the struggle against tax evasion, taxing the rich and a tax on speculative transactions; 3) the recapitalization of the state banks; 4) opposition to privatization and defence of public services; 5) rejection of cuts in wages and pensions. These measures are in fact are so moderate and limited in their scope, that many of them have already been adopted by the European Parliament, including a tax on speculative capital.

The crucial point that is lacking in the policies of the leadership of both the PCP and the BE is a clear explanation that this is a crisis of the capitalist system and that in order to struggle against it one must pose a socialist answer. Proposing the renegotiation of the debt (and its auditing, as proposed by the BE) is not really revolutionary, nor even progressive. In Greece, the debt is being renegotiated (through a series of “haircuts”) because of the growing realization even on the part of the EU, ECB and German finance capital that it cannot be paid. The proposal of the BE of involving private creditors in talks about the debt is what the troika is already doing in Greece. All of these proposals stay within the limits of the capitalist system. The problem is that the capitalist system is in crisis, and in Portugal we have an extremely serious crisis.

The task of left-wing organizations is to raise demands in defence of jobs, services and living standards, and against the austerity packages as part of a general programme of struggle against the capitalist system. This can only be a socialist programme, starting with the repudiation of the debt, the nationalization of the banks and key sectors of the economy and an appeal to the working class of Europe for a united struggle against the capitalist system as such. In the process of the bitter struggles that will take place in the next few months and years, the most advanced elements of the Portuguese working class and youth activists must be rallied to this perspective.