Rented, the success of Portugal's economic model has ups and downs

The recovery of the country's economy, now supported by tourism and exports, began after the application of a public accounts adjustment

PARIS.- At times, the elderly complain about the rite that most Lisboetas have become used to: every day, huge cruises spit out hordes of pbadengers in the Santa Apolonia terminal, on the banks of the Tagus River, near the neighborhood. history of Alfama

At a time when Portugal breaks all records of tourist influx, with 23 million people a year, an increase of 50% in five years, and despite the caution of several specialists, its economy enjoys such good health that many do not hesitate to describe it as a "miracle". So much so that the opposition sectors in Argentina are using their model as an example to follow to overcome the crisis.

"Portugal is a paradise, but fragile," Andres Malamud warns. The sentence of the Argentine political scientist and professor of the University of Lisbon, based in this country in 2002, is the perfect summary of the Portuguese phenomenon.

But what a trip! Regarded as one of the weakest links in the European Union (EU) during the crisis of the euro, Portugal counts nine years later, in 2010, among the most virtuous members of the world. Its accounts are close to the budget balance and grow faster than its neighbors. .

Even though the country does not escape the general trend and underwent a reduction in the end-of-year regime, its GDP growth in 2018 was 2.1%, well above average the euro area (1.8%). . At the same time, unemployment, which rose from 8% to 18% during the crisis, is now below 7%.

Three and a half years after coming to power, the jovial socialist prime minister Antonio Costa appears to be responsible for this miracle. His balance continues to impress the rest of the EU. The Eurogroup (which brings together the finance ministers of the euro area), has even been appointed to direct him to his trusted man and economy minister, Mario Centeno. "It's the Cristiano Ronaldo of the European economy," said Wolfgang Schauble, a former German finance minister, known for his uncompromising budgeting.

Costa's strategy, based on a reactivation of demand, also seduces the left and the far left in Europe. From Jeremy Corbyn, a British union leader, including Benoît Hamon and even Jean-Luc Melenchon in France, everyone appreciates the live demonstration that an anti-austerity project is possible, implemented by a united left. While the PS ruled alone, Costa managed to convince the Communist Party and the Left Bloc (equivalent of Greek Syriza) to support its management.

In other words, the merit of the recovery does not lie solely in the current government. This so-called miracle lies in the main characteristic of a society capable of accepting the sacrifice of adjustment and of a political clbad that can say "present" to fight the crisis.

In any case, Antonio Costa can boast of having fulfilled his political and economic commitment, which had to meet a double challenge: restore the purchasing power to the more modest Portuguese and, at the same time, reduce the budget deficit requested by Europe.

When he came to power, the situation in the country was extremely fragile. It is true that the right-wing government of Pedro Pbados Coelho, who led it between 2011 and 2015, avoided bankruptcy. But the austerity policy and the structural reforms to be applied in exchange for emergency aid from the troika (IMF, European Central Bank and European Commission) had an extremely high social cost.

"Modest people were on the verge of suffocation, the fruit was ripe," says Antonio Costa Pinto, professor at the Institute of Social Sciences of the University of Lisbon.

But it was not brutal changes either. Determined to reactivate a weak economy, Prime Minister Costa decided to increase small pensions and reduce taxes for low-income households. "Doing the opposite would have hurt the competitiveness of SMEs, although quality optimization has allowed them to cope with Chinese competition," says João Duque, a professor at the Higher Institute of Technology. economy and management.

Since then, the share of exports in the GDP of the automotive sector, capital goods, textiles and agri-food has increased from 21% to 43% between 2010 and 2017.

Another badet: Tourism revenues doubled from 4% to 13.7% of GDP in less than ten years and benefited the real estate market, services, hotels and restaurants.

The tourism sector has been supported by foreign investment, encouraged by a liberalization of immigration conditions for non-Europeans, who can benefit from the so-called "gold visas" since 2012. There are also a number of tax benefits for Europeans. , with a status of "non-habitual residents" very favorable to businesses as individuals, including retirees.

And although several dozens of start-ups have already been set up in Lisbon, creating some momentum in the world of the digital economy, private investments have been mainly oriented towards the real estate market. This phenomenon, however, has created a disturbing real estate speculation and a vertiginous rise in real estate prices in all Portuguese cities.

In order to guarantee union peace, Costa decided to return to the former regime of 35 hours of weekly work in the civil service and to hire 20,000 employees in sectors in tension (education, health and justice) . But the measure is a drop of water compared to the purge of the previous team: 110 000 job cuts out of a total of 675 000 people.

With regard to collection, the current government has not touched VAT, which rises to 23%. On the contrary, it raised taxes on fuels, tobacco, alcohol and non-alcoholic beverages. "With the reactivation of consumption, the calculation has yielded good results from a budgetary point of view," says José Luis César das Neves, professor at the Faculty of Business and Economics of Lisbon.

Pragmatic, the government team has not changed the deregulation of the labor market carried out by the right. Costa is even trying to go further by easing precarious employment and offering businesses the opportunity to use overtime at the normal rate.

The government faces an additional challenge: the demographic collapse and the exile of qualified young people, which weighs heavily on business development. Portugal loses 25,000 inhabitants a year out of a population of ten million. To encourage them to return, Costa has announced a tax reduction. Those who emigrated between 2011 and 2015 and who return to the country between 2019 and 2020 will pay only 50% of the income tax.

According to experts, the biggest threat to Portugal is its structural weakness, linked to the size of its debt, slow in the medium and long term.

"The decade 2000 was accompanied by an increase in public and private debt, although public debt rose to 120% and non-financial debt to 134% of GDP, while it had peaked at 180%, the debt reduction is still far For comparison, private debt in Spain reaches 124% and 106% in Italy, "says Danielle Schweisguth, an badyst at the bank Societe Generale.

This year will be crucial for Portuguese politics, marked by two important elections: the renewal of the European Parliament in May and the parliamentary elections in October. But, with about 38% of the voting intentions in the last polls for this latest election nomination, the Socialist Party (PS) of Antonio Costa has not, for the moment, too many reasons to vote. ;worry.