The European Commission, which is the governing body of the European Union, appears to be ready to take punitive action against both Portugal and Spain for not meeting imposed limits on budgetary red ink. Both countries could face substantial fines. Portugal, at least, is fighting back hard.
The European Treaty on Stability, Coordination and Governance imposed on member states by the European Union leadership in 2012, requires that on pain of financial penalties, no country is supposed to run a budget deficit of more than 3 percent of Gross Domestic Product in any given year. This is easy for wealthier countries like Germany and the Netherlands, who have been promoting strict adherence to this guideline.
It is extremely hard on the poorer countries which are rather insultingly called the PIIGS: Portugal, Ireland, Italy, Greece and Spain. They are forced to impose measures of austerity that create great suffering for their people as well as shrinking rather than growing their countries’ economies.
The penalties, of course, hurt the poor countries much more than the rich ones. Yet people like German Finance Minister Wolfgang Schäube and Chancellor Angela Merkel have been very tough on anyone who tries to make this system more flexible.
The government of Greece found this out the hard way. The left wing SYRIZA Party government elected has found itself forced by the Troika, which is the combination of the European Union, the European Central Bank and the International Monetary Fund, to impose harsh austerity and privatization measures, the denouncing of which had brought it to power in the first place.
Massive demonstrations in Greece are now directed against the government because of the suffering that these measures have caused.
In October, Portuguese voters gave a big electoral victory to the Socialist Party, sweeping the previous right wing government of Prime Minister Pedro Passos Coelho out of power. Through deft maneuvering, the alliance of the Communist and Green Parties, plus the Left Bloc Party, managed to create an arrangement whereby the Socialist Party was able to form a new government, supported by the left “from the outside” (meaning they did not ask for cabinet positions), with former Lisbon Mayor Antonio Costa as prime minister.
Costa promised to roll back austerity and privatization measures, implemented by Passos Coelho, as a condition for the Communist-Green-Left Bloc support. So far, Costa has been as good as his word, and is doing all right in public opinion surveys.
However, rumblings from Brussels, where the European Union is headquartered, were anticipated, and began at the beginning of the year. The European ruling class is particularly annoyed that Costa’s government has raised the minimum wage and restored a 35 hour work week.
The rumbling is getting stronger. On July 7, Valdis Dombrovskis, the Vice President of the European Commission, while recognizing that Portugal, and also Spain, have made some progress in cutting their deficits, have “veered off track in the correction of their excessive deficits, and have not met their budgetary targets.” Spain had a budget deficit of 5.1 percent of gross domestic product last fiscal year, more than the interim goal agreed to of 4.2 percent. Portugal’s deficit was 4.4 percent. This is deemed unsatisfactory by Mr. Dombrovskis and other leaders of the European Commission.
Ironically, the two countries’ governments could hardly be more different. The Spanish government is a mess, as two successive elections this year failed to give any political party a majority nor even create a credible route to a coalition government.
The right wing People’s Party Prime Minister, Mariano Rajoy, is staying on as caretaker prime minister in the meanwhile. Rajoy is a right wing figure, mired in corruption scandals and associated with harsh austerity policies, while Prime Minister Costa of Portugal is rolling back the same sort of policies.
The decision has not been made whether to impose financial sanctions, which could be up to .2 percent of gross domestic product on Spain and Portugal, and could also involve blocking access to further credits. This situation comes as European markets are in turmoil due to the Brexit vote in the United Kingdom; the European Union is now shakier than it has been in many years and its leaders may not want to risk more “exits”. So in the end there may be no penalty imposed. At any rate in Portugal, the government and its allies are not taking the situation quietly.
Prime Minister Costa staunchly defended his government’s fiscal management in a letter to European Commission President Jean-Claude Juncker and Council of Europe President Robert Fico, pointing out the efforts his government has made to control the deficit but also the unfairness to the Portuguese people of imposing more sanctions after they have gone through so much.
The Portuguese left went beyond the prime minister’s firm but politely phrased letter. João Oliveira, a Communist Party member of parliament, said of the threatened sanctions: “This is a continuation of the process of extortion, of pressure against our country, with three objectives: cause the reversion of the positive measures which have been taken in recent months; try to restore the program of the previous government [of Passos Coelho] of the aggravation of exploitation and impoverishment; and also the mutilation of [our] national sovereignty and the ability of our sovereign institutions to make decisions about our country.”
Catarina Martins, leader of the Left Bloc (Bloco Esquerda) in the Portuguese parliament, was equally fierce. The threatened sanctions, she said “are an attack on Portugal. They “reveal the humiliation which they want to inflict on our country.”
At the initiative of the Portuguese Communist Party, the GUE/NGL (The United European Left/Nordic Green Left), which is the bloc of left and Green parties in the European Parliament, slammed the threatened sanctions against Portugal and Spain, in a statement which reads in part: “The GUE/NGL vehemently denounces and firmly rejects the economic and political interference being carried out by the institutions of the European Union, in particular the European Commission, against Portugal and Spain and their peoples. The so called “sanctions” are, independently of the form which they acquire (fines, suspension of European Union funds or whatever other “symbolic” form) as illegitimate and unacceptable.
“The intention of punishing the people of Spain and Portugal, who are victims of an economic crisis which results from the policies of the European Union itself, implemented by previous governments, constitute an aberration, a terrible injustice and an unacceptable act of aggression.”
Photo: Anti-austerity demonstration in Porto, Portugal. | Wikipedia (CC)