Duncan’s Economic Blog

Portugal: A Warning for Osborne

Posted in Uncategorized by duncanseconomicblog on April 7, 2011

This morning George Osborne claimed that Portugal provides a warning to the UK. He’s probabaly right – just not in the way he thinks he is.

 Osborne seems to believe that events in Lisbon provide a rationale for his cuts package (the steepest amongst the major economies).

To listen to the Chancellor one would assume that the profligate Portuguese have been merrily spending away for the past few years and only now are being forced to adopt Osborne-style austerity measures – if only they’d had the foressight to start cutting earlier.

This is abject nonsense – here’s a Bloomberg story from six months ago:

Portugal’s economy will barely expand next year as slowing growth in Europe and austerity measures to cut the euro-region’s fourth-biggest budget deficit choke the country’s economic recovery.

At roughly the same time as Osborne was announcing his CSR Portugal adopted similarly ‘tough’ measures – a VAT rise, cuts in the public sector wage bill and cut backs in public spending. Meanwhile the Finance Minster argued that these measures would ‘restore market confidence’ and pinned his hopes of growth on an improvement in exports.

This all should eerily familiar to those following the UK economic debate over the past year.

The results of this austerity experiment are plain to see today.

The same of course occurred in Ireland – two years of ‘emergency budgets’, cuts and ‘tough measures’ have led to sky high unemployment, faltering growth and ultimately a loss of confidence by the markets.

Greece’s ‘bailout’ a year ago was similarly accompanied by the kind of austerity package that Osborne advocates in Britain. The result? One month ago it was again downgraded by the ratings agencies.

Countries around the world are implementing the kind of package Osborne is pushing ahead with domestically – the results everywhere are the same: higher unemployment, lower growth, higher debt and ultimately a loss of market confidence.

The strangest thing today is that as Portugal’s policies of VAT rises, spending cuts and hopes for export-led growth unravel Osborne is claiming it as vindication.

14 Responses

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  1. Dave Holden said, on April 7, 2011 at 4:30 pm

    So on the one hand the UK isn’t Portugal but on the other hand the UK is Portugal. Ireland’s problems are nothing to do with austerity there to do with them bailing out the failed banking system.

    • duncanseconomicblog said, on April 7, 2011 at 4:33 pm

      The UK, unlike Portugal isn’t facing a market crisis.

      The UK is however implenmenting failed polciies like those of Lisbon.

      Of course the Irish should have allowed their banks to default – but two years of austerity have killed the real economy.

  2. Dave Holden said, on April 7, 2011 at 4:41 pm

    Problem is the bond markets are find until they’re not. Ireland kept saying they’re not Greece, Portugal kept saying they’re not Ireland. Now we have Spain saying they’re not Portugal. What they all had was unsustainable debt levels. What the left need to address is that fact, so far they’ve not. What we do have is proposals to “cut less quickly” which leaves the question what is the magic number?

  3. Dave Holden said, on April 7, 2011 at 4:52 pm

    The guy’s an idiot. Nuff said.

  4. Dave Holden said, on April 7, 2011 at 4:53 pm

    Oop’s major apologies! replying in the wrong blog! In my defense I was talking about Donald Trump🙂

  5. ZenKite said, on April 7, 2011 at 5:16 pm

    There are alternatives.

    They are lucidly explained here…

    http://falseeconomy.org.uk/cure/the-false-economy-guide-to-the-deficit

  6. Newmania said, on April 8, 2011 at 5:52 am

    Aha ..now we know .The problem with Portugal was insufficient spending on the Public Sector financed with borrowing. You are drifting out into crazy land Duncan and the more of these really rather absurd fairy tales you publish the more the public will conclude that New Labour must never again be trusted with the Economy. I am loving Balls digging your grave deeper and deeper at a time when Kinnock was 10% better off .
    What else ? They should have picked more winners should have had higher taxes should have had a more planned economy should have had higher Labour costs more unions .

    Good point Dave makes about the bond markets by the way, your justification for increasing borrowing so as to throw more demand into the Economy is that there are plenty of suckers ready to lend it.
    Good plan for a trip to Vegas ,for people`s homes lives and the millions obliged to work fora living it is a smarty pants insult. You do not know best and the only reason your views have any hearing at all is the vast State within a state New Labour grew to whom the truth is a direct threat to their employment and privileged lifestyle.

  7. Agog said, on April 8, 2011 at 10:43 am

    One factor linking the troubled Eurozone economies is, of course their membership of the euro… They’re locked in with internal devaluation as the only ‘respectable’ way out. And needless to say there is a lot of opposition to that (needless to say if, that is, you put yourself in the position of someone with debts faced with the prospect of a big pay cut).

    The UK does not suffer the same problem. It remains a mystery to me why Tories who were previously so focused on the importance of monetary sovereignty are so silent on that issue now😉

  8. Dave Holden said, on April 9, 2011 at 9:30 am

    “They’re locked in with internal devaluation as the only ‘respectable’ way out. And needless to say there is a lot of opposition to that (needless to say if, that is, you put yourself in the position of someone with debts faced with the prospect of a big pay cut).”

    True but haven’t we just seen that in a globalised world devaluation is a pay cut by another means and if everyone devalues…

  9. Agog said, on April 9, 2011 at 10:13 am

    Dave,

    Of course I’m not saying there’s an easy way out for everyone. Just that when people make direct comparisons of monetary sovereigns (like the UK) with non-sovereigns (like Portugal) they are trying to mislead.

    As Mr. Cameron said last year, the “key difference” between the UK and Ireland is that Britain is not in the euro, allowing it the exchange rate and interest rate flexibility it needed to respond to any pressures.

    Why do you think Osborne is ignoring this “key difference” when he will have been briefed about it at least as much as Cameron?

  10. Agog said, on April 9, 2011 at 10:15 am

    (Hmm… sorry for the weird html artifact….)


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