Portugal has become the best pupil in the euro zone, with economic growth at its highest, unemployment at its lowest, investment on a permanent upward trend, and a budget deficit tending towards zero.
All this good news is accompanied by a world first: electrical energy generated by renewables has exceeded the country's consumption. The only drawback, an ideological one, is that the policy pursued to achieve these results is still the opposite of that advocated by Brussels and followed by Berlin and Paris.
The Portuguese Prime Minister's 2018 budget presented to the European Commission at the end of 2017 didn't go down too well. The Commission estimated that the required 0.6% cut in public spending would, according to Brussels' forecast calculations, be "only" 0.4%. It's a strange reproach when you consider that Portugal's deficit is now one of the lowest in the eurozone, at 1.4% in 2017, and is steadily shrinking.
This small country, on the brink of economic recession and major social collapse just a few years ago, has been steadily improving its economic and social performance over the past 30 months, much to the dismay of the leaders of other European countries, led by Emmanuel Macron, who have adopted liberal policies of budgetary rigor. The latest measures taken by Antonio Costa's government, much decried by its right-wing opposition, nevertheless seem to be continuing to work in favor of a general improvement, both social and economic, whether for companies, investors or middle and working-class employees and pensioners.
Stimulus, tax adjustments, minimum wage increases and investment incentives
While in France taxes on the highest incomes are being lowered, corporate taxes abolished or compensated for, while pensions are being frozen, the Portuguese government has embarked on the opposite fiscal policy. The 2018 Portuguese budget provides for a substantial cut in income taxes for the middle classes, accompanied by a further increase in retirement pensions. When it comes to corporate taxation, the Portuguese option is also the opposite of France's: the introduction of new taxes for all companies with sales in excess of €35 million. As for civil servants, job transfers and promotions in the civil service are being unblocked.
The demand-driven economic policy pursued by the Portuguese government over the past two and a half years is clearly bearing fruit. This policy is based on boosting consumption by improving the professional and social conditions of Portuguese workers, in order to make the country more attractive to investors, improve productivity, enable production to move upmarket, and so on...
Unemployment therefore continues to fall, set at 7.8 % at the end of 2017, while it was 8.9 % in France at the same period (statistics as defined by the International Labor Office). The minimum wage was raised from €530 to €557 in 2017 and will be raised again in 2018 to €580, with the government aiming to raise it to €600 in 2019. The Portuguese demonstration of improved investment and private-sector employment thanks to higher wages and social benefits comes as a major blow to the European doxa that business competitiveness must necessarily involve lowering or freezing wages and reducing state social spending...
Renewable energies, modernization on the double: what's Europe waiting for?
The recent "world first" on the scale of a country with a population of over 10 million should set an example for political leaders advocating the ecological and energy transition: Portugal produced more electricity from renewables in March 2018 than it consumed! France, which claims to be a major promoter of this transition, only just reached 16% of renewable energies in 2017, and will clearly not meet its commitment of 23% for 2020. French electricity production is still based on nuclear power at over 70%. Portugal's 103% of renewable power generation capacity is surprising, and underlines the country's ability to modernize on the double: a year earlier, for the month of March 2017, renewables had produced just 6% of the country's consumption!
What Brussels and the majority of Eurogroup leaders don't seem to understand, or want to hear, is quite simple: reducing budget deficits is not just a matter of cutting public spending. The more a State boosts its economy by improving the income and social protection of its population, employees, pensioners and businesses, the more its revenues increase. With sufficient and stable economic growth (2.7% in Portugal in 2017), low unemployment and rising investment, public spending is no more than a minor budgetary adjustment factor.
Antonio Costa's government has understood this and is applying a policy of economic, social and energy transition "accompaniment", without any particular dogmatism, other than that of not blindly bowing to a dogma that is itself very well established: austerity or budgetary restriction, disengagement of the State, privatization of public services, social dumping and the growth of inequalities through the "privatization of public debts" to the detriment of social protection.
In fact, Antonio Costa recently put forward a proposal in Brussels to tax the Califonian giants of the net in order to consolidate the European budget and better assist the regions: "All the major countries are having difficulty taxing these large American multinationals, the GAFAs. (Google, Amazon, Facebook and Apple). This could be another way of creating an own resource for the European Union."
The "Portuguese miracle" is not a miracle at all, and Europe could - if it were able to overcome its stubbornness - take a closer look at the success of this small country, which has managed to invent a way out of the crisis based on a better social deal that is still absent from the Union's policies, accompanied by an effective economic recovery. Faced with the repeated failures of the economic policies dictated by the European Union - compared to the successes of Antonio Costa's government - logic would dictate that a change of course should be made in the major budgetary orientations of the old continent. However, this still does not seem to be on the agenda. And the slowdown in growth in France and Germany, and the decline in investment and consumption in these countries in the first quarter of 2018, point to the fragility of the recent economic recovery in the "pro-Brussels" countries.
In the face of these contradictions, a phrase attributed to the German scientific genius, Albert Einstein, ironically illustrates the inability of EU leaders to change their economic policies: "Insanity is doing the same thing over and over again and expecting a different result". In any case, given the Portuguese results, resisting the madness and trying a different path seems clearly the best way forward: for the good of the population... at the very least. But is it even necessary to have this objective?