Twenty years after they joined the European Community, the Portuguese are again faced with a dilemma as part of the process of europeanisation; should they espouse economic and social modernity, or seek shelter from it? The question they are pondering is whether or not the negative economic cycle of the past five years is now gradually coming to an end, and whether the reforms initiated by the current majority government will bring back the buoyant mood of the 1990s. It’s a tough question because these reforms are very much in line with the ambitious objectives of the Lisbon strategy, and will still require a serious effort on the part of the Portuguese people. Their effect would be to put an end to the remaining elements of the conservative and inefficient state culture that Portugal inherited from the era of the Salazar dictatorship.
An economic growth rate of 3.5% during the 1990s earned Portugal a reputation for being a “good pupil” in the hard school of economic reform. It also convinced most Portuguese that in a relatively short time they, or their children at least, would reach the same standard of living as the rest of Europe. This socio-economic convergence with Europe was perceived as the logical outcome of a process that combined democratic stability with the beneficial impact of EU funds – over the past 20 years, Portugal has received €42bn from the structural funds and €6bn from the cohesion funds. Optimism spread through all sectors of society, triggering booms in private sector investment in consumer spending. The country’s ambitious infrastructure and road-building programme also helped to change the image of the country, both inside and outside, ushering in a period of substantial foreign investment by companies like Volkswagen and Ford. Most important of all, higher education expanded strongly and became available to many school-leavers whose own parents had often not progressed beyond elementary level.
Changes in Portugal’s economic structure have also been significant during the last 20 years. Textiles and shoes today account for a much smaller share of Portuguese industry, while services account for 56.8% of total employment and 70.9% of gross added value, and the financial sector has become particularly modern. But the transformation of the economic structure has not gone hand-in-hand with a modernisation of Portugal’s public administration, notably in such key sectors as the judiciary, health and vocational training. The creation of administrative regions, which arguably was the most relevant part of one plan for reforming the state, was rejected by a referendum.
The highly unpopular cuts in public spending introduced in 2002 were unable to reverse the deterioration of public finances, and the budget deficit reached a record 6%. The turn of the century had signalled a significant slowdown in the economy, and last year economic growth was just 0.5%. For the fifth year in a row, Portugal went into reverse and drew further away from the European GDP average.
The Portuguese today display the most pessimist attitude in all the EU-25 countries when it comes to the economic outlook. Yet there also seems to be a consensus that the country’s future depends on its ability to reform and modernise. A recent survey conducted by my own IEEI colleagues among the country’s international relations experts revealed unequivocal agreement on the country’s priorities; economic, technological and, above all, educational modernisation. This corresponds by and large to the electoral programme of the victorious Socialist Party in the last general elections. Prime Minister José Socrates’ reform programme represents a highly ambitious attempt to shrink the state, control public spending and invest in innovation, inspired by what the press has called “the Finnish model”.
For the first time in a decade, the political conditions for structural reform are in place. But the big question is not so much whether the government will be able to implement its reform programme, but whether the EU still corresponds to the country’s needs. Addressing this issue implies not just the reform of the Stability and Growth Pact to make it more intelligent, but also devising a genuinely European approach to economic governance capable of adjusting the macro-economic consequences of the single currency. More than ever, there is a sense that Europe must act as an agent for change, promoting a “shock therapy” in favour of the knowledge society. Will the Union be able to devise a genuine common policy for the Lisbon strategy, with a similar ambition and scope to the Delors packages of the past? Nothing seems more important today, even if nothing looks less certain.