Sardine capitalism: How Portugal turned from a bankrupt country into a model in Europe

Patricia Lisa, from Portugal, an analyst at the Real Instituto Elcano Studies Center in Madrid, Spain, says that “sardine capitalism” reflects the values ​​of her country.

“Not only sardines, but also everything related to tourism, re-industrialization, footwear, wine, fashion … and a strong investment in so-called economic diplomacy, which goes hand in hand with the internationalization of the economy,” she tells BBC News Mundo. , the BBC’s Spanish-language news service.

Indeed, Lisa notes that Portuguese diplomacy is known to be very intrusive.

“This is due to the way the country is managing to present itself abroad: despite being a small economy, it still has greater international expectations than is expected of it,” he says.

This, according to Lisa, is one of Portugal’s main structural axes: its strong commitment to internationalization. Due to its geographical location, the country has always turned to the outside world. Something that can be seen historically in the commitment to the sea and the maritime economy which is now also linked to new technologies and the renewable energy agenda.

Of course, this wasn’t always the case, and there were years Portugal had to look inward and occupy international news for much less optimistic reasons.

After the global economic crisis of 2008, Portugal slipped into a serious recession.

In 2011, on the verge of bankruptcy, the Portuguese government requested a rescue package of 78 billion euros from the European Union and the International Monetary Fund. The exchange was approved on the condition that the state implements austerity measures.

These were the years of the “troika”, as the assumptions of the European Commission, the European Central Bank (ECB) and the International Monetary Fund are widely known.

The period was marked by a significant decrease in public spending – which mainly affected the salaries and pensions of civil servants. Taxes have already been raised.

But unemployment has not stopped rising – it reached a record 17.7% in 2013 – nor have poverty and social discontent. On the other hand, Portuguese consumption and morale plummeted.

After the reforms implemented by the center-right government under the direction of the troika, Portugal freed itself from international creditors in June 2014, although there was no reason to celebrate: the unemployment rate was about 12%, 20% of the population lived below the poverty line, and 485,000 Portuguese emigrated from country between 2011 and 2014.

After the 2015 elections, a new center-left government was formed, led by the socialist Antonio Costa, who is currently in office.

The Costa government – with its acclaimed finance minister, Mario Centeno – has begun to reverse austerity measures, but without neglecting fiscal responsibility.

“They (the government) started spending a little more, for example, in terms of salaries, and this had a multiplier effect on the economy. The expenditures increased, but not by much, and this had a positive effect on GDP (the product, the total wealth of the country), and in group,” explains Antonio Afonso, professor at the Lisbon School of Economics and former chief economist at the European Central Bank (ECB).

Anti-austerity policy ended up at a turning point since the toughest moments of the financial crisis and it has paid off.

“Costa’s model was based on encouraging consumption as well as structural public spending, that is, public investments in education and infrastructure,” explains Lisa.

“You can’t think of a revolution or a rupture,” he notes. He adds that “the economic indicators for 2014, before the Costa government, were already showing signs of recovery”, but “it is clear that in 2015 there was a reversal in economic policy.”

The recovery was very noticeable in 2017. In that year, Portugal’s GDP grew by 2.7%, the highest rate in the country since the beginning of the new millennium, while the unemployment rate fell to pre-crisis levels.

Centeno has been dubbed “the financial Ronaldo”, in reference to Portuguese forward Cristiano Ronaldo, for the surprising performance of the Portuguese economy.

“2017 was the year of all the victories for Portugal, and it became a fashion in all dimensions, in the economic, political and social dimensions,” says Lisa. “We even won the Eurovision[the international song contest in which mostly Europeans participate],” he jokes.

This became known as the “Portuguese economic miracle”.

On the financial side, there is a critical factor that explains the success of the Portuguese economy.

“What happened remarkably in Portugal is that the savings rate increased dramatically in 2011, 2012 and 2013,” Afonso explains. “People were basically not consuming, which means imports are down. And when imports go down, the current account balance (the difference between exports and imports) improves.”

The good performance of exports, according to the economist, is due to two factors.

On the other hand, the transformation of the Portuguese industry in the past twenty years, which began to produce and export technically advanced products.

“There have been many exports in the textile sector, but since the 2000s there has been a lot of competition from China and Asia in general, people started betting more on quality and on differentiation,” says the economist. “This means that exports increased strategically.”

On the other hand, the context of the financial downturn in 2011-2012 “has an effect on prices, so it is possible to increase productivity”. “If you gain productivity, you gain competitiveness abroad, if you gain competitiveness, you can export more at a good price.”

“That’s what we’ve seen in the last 10 years or more,” Afonso adds.

Added to this is the tourism boom, and year after year, Portugal has broken the record for visitors to the country. Before the pandemic, tourism accounted for nearly 15% of GDP and the sector was responsible for 10% of employment.

According to specialists, another program that helped boost the economy was called Golden Visa, through which foreign investors who bought real estate worth more than 500 thousand euros in the country obtained a residence visa.

The scheme was introduced in 2012 and has continued under socialist governments, although not without controversy.

The good health of the Portuguese economy was hit hard by the coronavirus epidemic and GDP fell 8.4% in 2020, the worst recession since 1936.

The number of foreign visitors fell 76% last year.

However, according to specialists, the measures taken during the years prior to the epidemic allowed Portugal to better resist the crisis, and the country is one of the best performing countries in recovery.

In the second quarter of this year, the country led the recovery of the Eurozone and recorded the highest growth rate (4.9%) among EU member states, more than Germany (1.5%) and Spain (2.8%). ) or Italy (2.7).

From a health point of view, for example, Portugal has the world’s highest rate of fully vaccinated population against the coronavirus (86.38%), according to data from the Our World in Data platform from Oxford University. For this reason, vaccination centers are closed across the country due to low demand.

Now, once again open to tourism and in a practically normal scenario, the Central Bank of Portugal expects the country to end the year with a growth of 4.8%, while the unemployment rate is 6.7%, much lower than neighboring and dependent on tourism. Countries such as Spain (15%) and Italy (10%).

Of course, not everything is perfect for Portugal, and the Portuguese economy still faces significant challenges.

The main thing, in the opinion of Patricia Lisa, is the reform of the labor market.

“It is true that unemployment has remained low, but the Portuguese labor market is characterized by low wages. It is a huge challenge for Portugal,” he says.

In addition to the side effects of the tourist boom and the golden visa, which, in addition to the millions it has pumped into the Portuguese economy, has caused a significant increase in housing prices, especially in the capital Lisbon and in Porto. , the second largest city in the country.

“This model had consequences that caused housing prices to explode, especially in Lisbon, Porto and the Algarve,” says Lisa.

As a result of the protests, the socialist government reformulated the golden visa policy, excluding these areas. The goal now is to encourage the purchase of real estate on the islands of Madeira and the Azores, as well as in the interior of the country. The long-delayed changes take effect on January 1, 2022.

The pandemic hasn’t even stopped Portugal’s housing price hike – the rate was 8.4% in 2020, according to a price index from the National Institute of Statistics (INE, Portugal’s IBGE), minus 1.2 percentage points from 2019.

From associations that defend the right to adequate housing, such as Morar em Lisboa or Habita! They deplore that the same is happening with rents and that in areas like Lisbon, Porto or the Algarve, they are, in many cases, above wages. These entities argue that more public housing is needed.

With the Recovery and Resilience Scheme – awarded with European funds for post-pandemic recovery – the Portuguese government plans to build 26,000 homes by 2026.

With its achievements and challenges, and given the Foreign Policy article mentioned at the beginning of this article, is Portugal really an example for other small economies?

Lisa is cautious and says it is too early to say which models to follow.

“There are other European countries, also small, that joined the EU after Portugal and have extraordinarily positive trajectories, as is the case with Slovenia.”

“It is true that Portugal marked a turning point in austerity policies symbolically, but from that point on it seems to me to be a bit reckless as a model,” he says.

Moran, in turn, argues in the Foreign Policy text, that “the Portuguese, who have much less purchasing power in world markets and even sardines among salmon in the stifling monetary environment of the eurozone, appear to the small European states, with a skillful combination of political and financial action and little Out of luck, you can live a good life as the economy continues to grow.”

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