VIEWS FROM THE CAPITALS

Spring 2008

by António Figueiredo Lopes

Despite all the kudos Lisbon earned from getting 27 signatures on the EU’s Reform Treaty last December, institutional change was really a sideshow for the Portuguese presidency. The socialist government of Prime Minister José Sócrates wanted the new treaty dealt with quickly so that EU leaders could get back to the fundamental economic issues of the Lisbon Agenda.

Portugal particularly wanted to make progress on the structural and education reforms essential for Europe to create jobs and profits in the world’s most vibrant new economic sectors. The key issue for the Lisbon government is of course how long will it take for EU reforms to produce tangible results?

Portugal’s priorities for its EU presidency in part reflected a strategic vision for the future. The Lisbon strategy – which in 2000 promised to make the EU the world’s most competitive knowledge-based economy by 2010 – was formulated the last time the Portuguese held the presidency. But the Lisbon government’s priorities for the presidency this time around were also dictated by the severity of the country’s economic crisis. Portugal is scraping along the bottom of Europe’s economic league tables, with minimal GDP growth that is slower than both the EU and eurozone averages. The Portuguese in part blame the EU for their predicament. Lisbon is bound by the eurozone limits on public expenditure, and is finding this particularly painful in a period of low growth. Some sectors of Portuguese society also claim that the European Central Bank’s concern over price stability is excessive, and is costing the eurozone dearly in terms of job creation. Thus the Portuguese see Europe both as a yardstick for measuring the depth of Portugal’s economic crisis, but also partly as the cause of their troubles.

Europe is, nevertheless, also seen as a source of solutions. The debate over which European socio-economic model is most successful at generating growth and employment has been going on for years. The ruling Socialist Party won an absolute majority in parliament in 2005 on a platform that advocated a reformist “third way”. The socialists said that Portugal needed a strong government to address key problems with bold reforms, while maintaining balance over social concerns.

Since then, the Sócrates government has delivered a number of significant reforms and effectively tackled the public deficit. But slow growth and the rise of unemployment that is traditionally low in Portugal, has led to growing street protests, including a general strike in May of last year. Although the strike was seen by most observers as only a limited success, social unrest is now casting doubt over whether the government can hold on to power until the next elections in 2009. The political waters have been further muddied by recent changes in the leadership of the main opposition party, the center-right PSD.

Of more immediate concern to both the Portuguese and the rest of Europe is whether Lisbon will hold a referendum on the Reform Treaty. By late 2007, only the far-left opposition had called for one outright, with the PSD leaving its options open and the government delaying a final decision. Either way, opinion polls suggest that the Portuguese would support the treaty in a referendum. The EU remains popular here, despite economic worries.

The final word on both a referendum and a general election may go to Portugal’s President, Aníbal Cavaco Silva. While he does not hold executive powers, he can dismiss the government and call for early elections. He must also approve any referendum. The prestige of his office, plus the political legitimacy granted by his own PSD credentials, means the president could either fan the flames of protest against government reforms or act to calm things down.