Austerity policies in Portugal

One cannot say that the austerity measures in 2013 came as a surprise – all of them were mentioned in the first Memorandum of Understanding (MoU) between the Troika and the Portuguese government, signed in May 2011 by all governing parties (PS, PSD and CDS) |1|. The MoU imposes profound economic and political changes:

  • transformation of the productive structure;
  • annulment of protective labour legislation and collective bargaining;
  • looting of workers’ funds (pensions, social security);
  • privatization of potentially lucrative public services |2| such as health, education, security, communications, transport, water, energy, culture – and extinction of other public services;
  • increasing transfer (for the private sector and out of the country) of income, capital and human resources;
  • changes in tax policies.

To which we should add the spiralling public debt, although the Memorandum assumes otherwise.

The change in the economic structure and labor relations

The rapid transformation of the economic structure of the country includes:

  • reduction of domestic consumption/market;
  • channelling goods and productive resources for exporting and tourism sectors;
  • creation of a pool of peripheral cheap labour with no rights;
  • replacement of all workers with rights with precarious workers.

The focus on exports raises the issue of internationally competitive productivity and profitability. But given the prevailing policy of disinvestment in fixed capital, the only way to increase productivity and profit levels is to cut wages down, to increase working hours and to create new forms of unpaid work. In the short space of a year, a gigantic army of reserve labour emerged (official unemployment: about 16 per cent; real unemployment: above 28 per cent). Those who get out of unemployment fall into precarious work. Unfair dismissals find new legal forms and laws are passed to increase legal working hours. People often accept to work on weekends without a pay, just to be ‘nice’ and keep their jobs.

In 2013 the situation of poverty and unemployment sparked a wave of emigration, breaking all historical records |3|. Everyday 125,000 euros of pensions are seized |4|. 1.9 million people live below the poverty line (about 18 % of the population).

The traditional agricultural production, which food self-sufficiency relies on, is gradually being replaced by monocultures for export. The paper industry in Portugal created the largest area of eucalyptus in Europe; |5| new laws allow the expansion of eucalyptus plantation to the whole territory; other monocultures are linked to chemicals and Monsanto. In vast areas where there used to be farmers and shepherds, we now find only eucalyptus, resorts and golf courses.

The focus on tourism is more subtle, but still visible in the fact that almost all historical buildings and public buildings (including schools and hospitals) are ceded to national and international consortia that transform them into hotels and leisure centres. In Lisbon, within one year, 80 new hotels appeared; traditional public spaces are disappearing to make way for spaces dedicated to the tourist consumption.

The just-in-time mode of production puts the transport sector at the heart of the production system; this heart, however, may well become the weak link of the system. This allows us to understand the radical changes in the legal framework and structure of neuralgic sectors such as stowage (flow of raw materials, components and exports) and transport (flow of goods and workers). Workers in these sectors are among the most brave fighters/militants, but they have been under the government’s and employers’ attack since 2011.

The drastic shrinkage of the domestic market

Pharmacies offer a typical example: while Portugal is an exporter of pharmaceuticals, it is now hard to find medicines in pharmacies – the industry chose to export them.

This contraction is the result of the cuts in the remuneration of labor, which in 2013 fell close to slavery levels in some areas; in some cases to gain access to the job, the workers must pay a deposit.

As resources, industries and strategic areas for the collective interest are privatized, power supply, communications and other essential goods and services become more expensive and of lower quality.

At the end of 2013 many localities spent Christmas in the dark because the electricity failures are no longer readily fixed, even in cases where solving the problem would simply require the pressing of a button in the central power plant; people in the countryside have gotten used to living without communication services (phone and internet) many days a year.

The looting of funds belonging to the workers

The contributions of workers, mainly deposited in the Social Security and pension funds, are managed by employers or by the State. Some employers (e.g. banks), after squandering pension funds to their advantage, «offered» to State management those failed funds – now, the workers will have to make up for what the banks stole. All the talk about the unsustainability of the social security and pensions systems, on top of being based on false scientific and accounting arguments, aims at hiding the looting of the workers’ funds.

In mid-2013 the Finance Minister increased the share of the social pension funds invested in debt bonds. Another part is invested in corporate bonds. As a result, workers see a part of their income being invested in companies that, after being recapitalized, reduce the number of positions and replace workers with rights with precarious workers. In short: a portion of the social salary is used to recapitalize companies that create unemployment; another portion is used to subsidize the unemployed; and another part is used to subsidize companies directly. The panic created by the threat of depleting social security funds and pensions has another effect: pushing users to private health and retirement systems – a highly profitable business (immediately after weapons and drugs, according to statements made in front of television cameras by some managers of the health and insurance industry) that used to be insignificant in Portugal.

Industries that require large initial capital investment (distribution of energy, water infrastructure, high-tech communications, shipbuilding and metallurgy, highways, banks, etc.), some of them funded and modernized using the workers’ money during the last 38 years, are now transferred to private consortia for symbolic sums, or even with immediate financial loss.

The change in tax policy

In 2011-2012 the tax policy became less progressive, increasing the tax burden of workers through the VAT and the IRS |6|. The government seized one to two months of salary (or pension) in some sectors. Simultaneously, it reduced the tax on capital and finance income, especially benefiting the banks, which in the next fiscal year will save hundreds of millions of euros in tax.

As it was noted by the European commissioner for human rights |7|, in the whole process of intervention and bailout programs international creditors and national governments did not care to safeguard the rights of the population; austerity measures can no longer be seen as economic issues, but as a system designed to crush the political, economic and cultural rights of the population.


|1| Memoranda of Understanding: Letter of Intent (IMF); Portugal – Memorandum of Economic and Financial Policies; Portugal – Technical Memorandum of Understanding (TMU); Letter of Intent (EU); Portugal – Memorandum of Understanding on Specific Economic Policy Conditionality. Here we find expressions like: “a special contribution levied on pensions above €1,500 will be introduced in 2012”, “5 percent cut in nominal public sector wages and the freezing of pensions in 2011”, “Reduce costs in area of education”, etc.
|2| Even parts of Justice are expected to be privatized, but this part of the MoU has not yet been implemented.
|3| The Government announced in the summer of 2013 a reduction in the unemployment rate, but this only reflects the fact that when unemployed people emigrate, they are removed from the unemployment tables/figures.
|4| Many seniors put their salaries and pensions as a guaranty for their children’s and grand-children’s buying apartments, and now that the youth are unemployed, the parents’ salary is seized by court sentence.
|5| See Offxore, Portugal, campeão europeu do eucalipto, 18-05-2013. See Law 96/2013. See article by João Camargo, A Lei do Eucalipto Livre, 27-11-2013.
|6| Taxation on workers’ and families’ income.
|7| Safeguarding human rights in times of economic crisis, November 2013; see summary or full pdf.

By Rui Viana Pereira, Member of CADPP – Committee for the Abolition of Portuguese Public Debt.

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