ECONOMY-EU: Portugal – Still Lagging

By Mario de Queiroz Reprint | | Print |

Analysis by Mario de Queiroz

LISBON, Jan 10 2006 (IPS) - Two decades after the two Iberian Peninsula nations joined the European community, Portugal&#39s economy has remained at a virtual standstill for the last five consecutive years, while Spain has surged forward to become the world&#39s eighth largest economic power, overtaking Canada.

Despite the initial boost received by the economy when Portugal joined the European Economic Community (EEC) – now the European Union (EU) – in January 1986, alongside Spain, Portugal has failed to catch up to its fellow member nations, and is in fact sliding increasingly farther behind the average economic growth achieved by the bloc as a whole.

Even the former Yugoslavian republic of Slovenia and the tiny island nation of Malta, two of the 10 countries that joined the EU on May 1, 2004, have already surpassed Portugal&#39s economic indicators. Portugal had previously been outstripped by Ireland in 1999 and Greece in 2003, despite having a more robust economy than either of these nations back in 1986.

The Spanish economy, meanwhile, according to official figures from 2004 released in late December by the World Bank, has now pulled ahead of the Canadian economy, giving Spain the right to demand entry into the informal bloc of the world&#39s most powerful countries, the Group of 8 (G8).

The current G8 members – as listed by the Bloomberg financial news agency according to the size of their economies – are the United States, Japan, Germany, the United Kingdom, France, Italy and Canada, along with Russia, included in the group for political reasons. China is not a member of the G8, although its economy actually ranks sixth in the world.

Within the so-called Eurozone, made up of the 12 EU countries that have adopted the euro as a common currency, Spain is the country with the most dynamic economy, thanks to 3.5 percent annual growth, according to the World Bank.

The average economic growth achieved by the other 11 Eurozone nations – Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, and Portugal – was just one third of Spain&#39s.

In contrast, Portugal&#39s economy grew by a mere 0.3 percent last year, as compared to the EU average of 1.5 percent. And future projections forecast growth of only 0.8 percent this year and 1.2 percent in 2007, according to figures and studies presented earlier this month by the governor of the Portuguese central bank, Vítor Constâncio.

This means that Portugal will continue to move further away from the EU average for economic growth. Moreover, given its intermediate level of development, Portugal could take decades to catch up to the other 14 countries that formed part of the bloc before the May 2004 enlargement.

The country&#39s main economic indicators rule out any possibility of optimistic forecasts from the central bank. Private consumption, a driving force in any economy, will continue to grow, but at a slower rate than in previous years. After a rise of 2.3 percent in 2004 and a slightly lower 2.1 percent in 2005, a modest increase of only 1.1 percent is expected for both 2006 and 2007.

Meanwhile, after expanding 5.4 percent in 2004, exports grew by only 1.2 percent last year, and are not expected to recover until 2007, when they are predicted to rise by 5.2 percent.

As for investment, a minimal increase of 0.2 percent in 2004 was followed by a decrease of three percent last year, and this downward trend is likely to continue, with a 0.8 percent drop forecast for 2007.

Figures like these place the Portuguese economy "very close to stagnation," commented Constâncio.

Portugal&#39s economic performance appears even more grim when contrasted with Spain&#39s. When the two erstwhile colonial powers joined the EEC in 1986, they shared similar levels of development, both lagging considerably behind the other countries already included in the bloc.

But over the next two decades, Spain adopted a series of far-reaching changes that have now placed it on a par with the select club of the world&#39s leading economies.

For the 44.1 million people living in Spain today, EU membership has translated into a significant improvement in living standards for the population as a whole. In Portugal, meanwhile, one fifth of the country&#39s 10.5 million inhabitants live below the poverty line.

Spain and Portugal entered the EEC 20 years ago with similar levels of per capita gross domestic product (GDP). Each had figures equivalent to around 60 percent of the average rate among the existing member nations.

But by 1995, Spain&#39s per capita GDP had reached close to 90 percent of the EU average, while Portugal&#39s continued to trail behind at 75 percent, according to figures from the EU statistical service Eurostat.

Spain continued to close the gap between its own economic performance and that of its fellow member nations, and finished 2005 with a per capita GDP rate equivalent to 97.9 percent of the EU average. Portugal, on the other hand, slipped even further behind, closing out that same year with a figure representing just 71 percent of the bloc-wide average.

What&#39s more, according to Eurostat forecasts released late last year, Portugal is expected to continue this backslide, and by 2007, its per capita GDP is expected to stand at 69.1 percent of the EU average.

A variety of factors, both international and domestic, are responsible for the practically unanimous pessimism of observers and analysts when it comes to the future of the Portuguese economy.

In the context of the EU, Portugal is particularly threatened by the new members from eastern Europe, which offer cheaper labour and more competitive prices for their products. On the international scene, Portugal&#39s flourishing textile industry is in danger of being wiped out completely by the flood of low-priced clothing and fabrics from China and India.

The economic outlook has been rendered even bleaker by the austerity measures adopted by the government of socialist Prime Minister José Sócrates to reduce the public deficit.

Tax hikes have led to an abrupt drop in consumption, thereby hindering growth, while cuts in public spending mean the state has fewer resources with which to make any significant investments.

According to most economic analysts, the torrents of money that flooded into Portugal from the EEC and EU throughout 20 years served to modernise the country but did not succeed in lifting two million people out of poverty.

Today, Portugal holds the ignominious title of being the country with the highest degree of social injustice in the EU, with the lowest minimum wages and juiciest salaries for state company directors in the region.

In 1986, EEC membership was enthusiastically welcomed by the vast majority of the Portuguese population, in a country eager for modernisation. However, "the gap between expectations and reality grows wider with each passing day," according to a recent article in the Lisbon newspaper Diario de Noticias.

For the private sector, membership in the bloc represented the opening up of markets. But for workers, "the promise of European salaries and a decent standard of living for the elderly has yet to become a reality," 20 years after the EEC awakened "endless hopes" among Portugal&#39s poorest inhabitants, the article added.

Essentially, the outcome of these 20 years is that the construction of infrastructure and expansion of the consumer society have not been matched by an improvement in living conditions for the majority of the Portuguese population.

The changes have been more superficial than profound. Freeways have transformed the landscape, but have not eliminated the country&#39s true vestiges of backwardness.

Numerous analyses have been published by the Portuguese press in recent weeks, all highlighting the fact that while Spain has taken advantage of the funds provided by the EU in such a way as to earn it a privileged place among the countries of the world, the Portuguese elites and governments of the last 20 years have not used this money to promote development, but rather to foster the emergence of a "nouveau riche" social class.

The community funds did not staunch the flow of migration from the countryside to coastal cities, nor did they strengthen the country&#39s industrial base or salvage its once powerful fishing fleet. And little was done to promote the education and professional training needed to compete on an equal footing in the unified world market created by globalisation.

In other words, Portugal failed to do precisely what was done in Spain, where the economy has grown at such a dizzying pace over the same time period as to achieve convergence with the most developed countries of Europe.

Among other advances, Spain has built 6,000 km of toll-free highways for its citizens, a network of high-speed trains, and companies that can successfully compete with any in Europe. It has fully modernised its agricultural industry, making it one of the most efficient in the world.

For its part, Portugal "has done a great deal, it&#39s just that it hasn&#39t done what would have been most decisive for the future," stressed the Diario de Noticias article.

The author calls to account those responsible for having decided, for example, to build freeways instead of modernising the country&#39s railway system, or for having failed to develop solar energy in a country where the sun shines almost year-round.

Basically, the article concludes, the modernisation process undertaken in Portugal is "conservative, consumerist and geared to the nouveau riche," which has served to convert membership in the European community and the resulting funds into "a collective illusion that is destined not to last."

According to the sociologist Boaventura de Sousa Santos, a professor at the University of Coimbra and one of the driving forces behind the World Social Forum, "in the last five years, an attitude of pessimism has taken root in the Portuguese educated class, which is so frequently reiterated and seldom questioned that it is threatening to become the new shared outlook of Portuguese society in general."

However, he added, because the cultural elites are small in number, heavily shaped by foreign influences, "and generally ignorant of or removed from the realities of the country, it is difficult to tell to what extent the pessimism of the elites is the pessimism of the Portuguese people."

At this crucial moment of adopting a fully European identity, it is clear that "our development is intermediate, with a mix of first world and third world traits, and in today&#39s global system, it is not easy to gain access to the club of developed countries," stressed the sociologist.

Sousa Santos concludes by foreseeing that this will be a long and difficult historical process, because in his view, "expectations were created that cannot be fulfilled in one generation."