Dear policy makers:
The world economy remains in a funk, as does our economy here at home. What little growth we have seen is anemic and unemployment remains an nearly unheard of levels. We need an infusion of government money into our economies to help offset the massive amounts we have seen evaporate.
And yet, in Greece, in Italy, in Ireland, here, we have politicians talking about cutting their way out of the morass. That is a mistake.
Unlike Greece, Portugal is a debtor nation that has done everything that the European Union and the International Monetary Fund have asked it to, in exchange for the 78 billion euro (about $103 billion) bailout Lisbon received last May.
And yet, by the broadest measure of a country’s ability to repay its debts, Portugal is going deeper into the hole.
The ratio of Portugal’s debt to its overall economy, or gross domestic product, was 107 percent when it received the bailout. But the ratio has grown since then, and by next year is expected to reach 118 percent.
That’s not necessarily because Portugal’s overall debt is growing, but because its economy is shrinking. And economists say the same vicious circle could be taking hold elsewhere in Europe.
Two other closely watched countries on the debt list, Spain and Italy, also have rising debt-to-G.D.P. ratios — even though they, like Portugal, have adopted the budget-slashing and tax-raising measures that the European officials and the I.M.F. continue to prescribe.
Portugal, as the Times points out, is the poster boy for austerity.
Vitor Gaspar, the Portuguese finance minister who came to power as part of a new government last summer, is highly regarded by European economic and finance officials. He has reduced the government’s budget deficit by more than one-third so far, through tough measures that include cuts in spending and wages, pension rollbacks and tax increases.
But many economists say those moves are also a reason Portugal’s economy shrank by 1.5 percent in 2011 and is expected to contract by 3 percent this year.“Portugal’s debt is just not sustainable,” said David Bencek, an analyst at the Kiel Institute for the World Economy, a research organization in Germany. “The real economy does not have the structure to grow in the future and thus will not be able to pay back its debt in the long run.”
Without growth, there can be no reduction in debt —
It is akin to trying to pay down a large credit card balance after taking a pay cut. You can slash expenses, but with lower earnings it is hard to set aside money to pay off debt.
And it puts average workers in a painful bind, as they end up paying the price of poor decisions by government officials and bankers. Portugal is watching this play out as Europe and Greece debates how to address the Greek debt problem.
wage contraction throughout the country was prompting increasing numbers of Portuguese to leave the country, even as their government labors to prove it is worthy to remain part of the euro zone.Why, Mr. Lains asks, should he and his fellow citizens suffer while the bondholders get their money back? “It’s not the fault of the Portuguese people,” he said. “The fault lies with the structure of the euro.”
And, I would add, an economy built for the banks.
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Hank Kalet 