Portugal: A Warning for Osborne
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.