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Oh, Portugal!!
Submitted by Erico Matia Tavares of Sinclar & Co.,
It has been centuries since the Portuguese last dominated the world's seaways, but in glancing over recent headlines one would be forgiven for thinking that their pirates are still running around.
With the economy still reeling from the effects of the devastating financial crisis in 2010-11, Portugal has been rocked by a series of corruption scandals which go to the very core of the political and financial establishments.
None other than José Socrates, Prime Minister from 2005 to 2011, is being held in custody in connection with money laundering, tax evasion and corruption charges; the figures involved are rumored to be in the many millions. A number of top officials of the current government have also been detained on graft charges targeting wealthy foreigners – mostly Chinese – seeking Portuguese residency under the "golden visa" scheme.
Earlier in the year, Grupo Espírito Santo, a significant conglomerate that owned a large stake in BES, one of Portugal's largest private banks, failed spectacularly, after dodgy accounting practices and money transfers supposedly intended to fool regulators and investors could no longer remain hidden. Here we have the blue blood of Portuguese finance, with close ties to major domestic and international corporations and governments. The resulting losses are in the many billions.
Over the years there have been recurring allegations of corruption and unsavory dealings in the press, but these have been largely inconsequential. For one, Portugal is still perceived as being “cleaner” than its Southern European peers: according to Transparency International, in 2013 it ranked #33 "cleanest" country in the world, compared to Spain at #40, Italy at #69 and Greece at #80.
Which is why these latest scandals are particularly shocking. Judicial actions of this nature being taken against very high profile political and business figures are extremely rare, even unprecedented in Portugal’s contemporary history.
Now, will these scandals have an impact on the economy? And if so, how?
Jobs and income have disappeared since the breakout of the crisis – and many Portuguese with it. Last year more than 128,000 people left the country (official figure; the real number could be much higher), compared to just 21,000 in 2000; newborns are at generational lows; and immigration, which had been a key source of population growth, has been net negative since 2010. Those wealthy Chinese with golden visas will find an increasingly empty country upon arrival.
This dire demographic situation is symptomatic of a very challenging economic environment. After being one of the founding members of the Euro, Portugal has been a real laggard in terms of growth. Here's the relative performance of its GDP per head on a purchasing power parity (“PPP”) basis in recent decades:
GDP per Head on a Purchasing Power Parity Basis (USD): 1995-2013
Source: World Bank.
(a) Simple average of Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Malta, Poland, Slovak Republic and Slovenia.
Portugal's economic divergence relative to Europe’s core is striking; it has even been overtaken by an average of the newcomers that joined the European Union in 2004, many of which are former communist countries. This in spite of Portugal receiving billions in structural reform funds from Brussels for almost three decades now – a process which is still ongoing.
So how did this significant underperformance come about?
Every year the World Economic Forum publishes the Global Competitiveness Report, which ranks over 140 countries based on their Global Competitiveness Index (“GCI”), a comprehensive tool that measures the microeconomic and macroeconomic foundations of national competitiveness. In order to get a sense of why this is relevant, here’s how GCI correlates with GDP per head (also on a PPP basis) in the latest survey:
Relationship between the GCI and GDP per Head on a Purchasing Power Parity Basis (USD): 2014-15
Source: World Economic Forum.
Clearly there’s a positive relationship, suggesting that high income levels per head are generally accompanied by high competitiveness readings. Stated differently, a country is likely to get richer as it becomes more competitive and vice versa.
And here’s how Portugal is faring in terms of GCI and its variables and sub-components compared to the five most competitive economies of that newcomers group (the higher the ranking, the better the relative performance):
Source: World Economic Forum.
Portugal’s GCI is a little better than most others in this group, but that’s only because of the big jump recorded over the prior year, from #51 to #36 (driven by improvements in market efficiency). The variable that really stands out negatively for Portugal is “macroeconomic environment”, which accounts for things like fiscal balance, government debt, inflation and credit rating (the more negative they are, the bigger the burden on the economy going forward).
But we can dig a little deeper. The following graph compares the evolution of the main “basic requirements” sub-components, “efficiency enhancers” and “innovation factors” relative to the 2006-2007 survey, the oldest publicly available:
Change in Selected Variables 2006-07 to 2014-15 (%)
Source: World Economic Forum.
The drivers behind the deterioration of Portugal’s overall competitiveness since 2006 are fundamentally its institutions, where the robustness of its legal system and corruption are included, and macroeconomic performance. In contrast, the other countries have broadly improved on these variables. Most likely this differential would have been even more pronounced if we had gone further back in time.
The only thing holding up Portugal’s GCI over this period is the big improvement in infrastructure. Portugal now ranks #17 in the world, far ahead of the selected newcomers. In road quality, a sub-component of this variable, it actually ranks #2 (second only to the United Arab Emirates)!
And how were these world-class roads financed? In a country with chronic budget deficits, no doubt at the expense of macroeconomic performance – which as we have seen is now badly hurting its competitiveness. Profligacy, it seems, has a price.
With all of this in mind, let’s go back to the question we posed earlier: how will the recent corruption scandals impact the economy?
The Most Problematic Factors for Doing Business in Portugal: 2014-15
Source: World Economic Forum.
According to the results of a recent survey on the most problematic factors for doing business in Portugal, shown above, corruption ranked far lower than government inefficiency, the #1 concern. While this survey was conducted much before the latest scandals came to the fore, we could argue that these two factors are actually interrelated.
That large government bureaucracy gradually grew in order to handle, among many other things, the billions in development funds pouring in from the EU over many years. Coupled with a lack of transparency of government policymaking (Portugal ranked #81 here, right after Uganda), high favoritism in decisions of government officials (#54, after Kazakhstan) and a horrendous legal framework efficiency (#111, after Russia), the temptation for a select few to put their hands on the public purse may be just too great.
A likely consequence? A raft of infrastructure projects with dubious returns, and possibly many more other shadier dealings; in other words, spectacular roads – and a bankrupt economy.
This of course may be a gross oversimplification and we still don't know the extent of any wrongdoing; the judges need time to do their work. Moreover, the vast majority of public servants are (and should remain) beyond reproach. The fact is, however, that something went horribly wrong in Portuguese policymaking. After all, the country did go bust, and now millions of people are paying a heavy price, jeopardizing whatever’s left of their European aspirations.
Therefore, Portugal’s judicial system showing its teeth on politically sensitive cases is a good thing. Improving the credibility and effectiveness of its institutions is an absolute necessity to reverse the country’s misfortunes and enhance its overall competitiveness. So tackling these scandals may actually have a positive impact going forward.
For sure, much more needs to be done to get Portugal’s economy humming again. We have written previously on the de facto currency appreciation which has left Portugal increasingly out of the world markets, as well as on its ballooning indebtedness. Fixing these issues will require much more than just vigilant judges.
But hopefully, with some luck, from now on the pirates will be the ones leaving Portugal, instead of its hardworking citizens.
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Corruption in politics AND finance? I am shocked... just shocked...
OK 128,000 left the building but what is the current net migration figures?
It does not matter. But it's heavily negative...
The bad part is 82,877 babies were born and 130,000 people died. This is in line with a 10 year downtrend.
We are losing 1.25% of total population y/y.
Officialy. Personally I think it's closer to 2%.
If they have high net migration the population can still increase for a time.
Portugal has one of the lowest fertility rates in the EU.
It mostly likely because the native young cannot get jobs and thus purchasing power as there is a large cohort of migrants , now in their 30 s who mint in their jobs at the Portuguese expense.
Q
It is not. I was born here, and I have lived here for 43 years.
People are considered "youngsters" and live with their parents until the ageof 35-40. All new jobs are fake, State jobs. In some areas the State is the sole employer. People go in debt to have new iPhones, cars, and other ostensive stuff, but they refuse to grow up and have kids. Narcissism and entitlement are prevalent in the whole country.
Having the ability to buy capitalist toys does not equate with local purchasing power.
You will find that the loss of purchasing power beginning proper in the 70s results in a lower fertility rate.
Okay, you don't really get it.
OK - what don't I get.?
The function of Jobs in a industrial economy is to distribute purchasing power.
However the jobs whether public or private destroy purchasing power .
Its a quite sick and twisted but effective form of capitalist control.
PS
Can you give Mr a data link on current net migration.
The trading economics website only gives up to y 2010 when it was still positive.
They have systemic problems and the EU free money parade made things a lot worse. The smaller countries in Europe are in bad trouble and euro policy is going to start killing them with countries like Greece and Portugal leading the way.
"If they have high net migration the population can still increase for a time."
Sure it can if you do what "Ireland's" Jewish Minsister for Population Replacement did, give citizenship to hundreds of thousands of Africans and Pakistanis while vigorously insisting that Israel remain Jewish. His handiwork can be seen on the streets of any town in Ireland today.
If they have high net migration the population can still increase for a time.
Portugal has one of the lowest fertility rates in the EU.
It mostly likely because the native young cannot get jobs and thus purchasing power as there is a large cohort of migrants , now in their 30 s who maintain their jobs at the Portuguese expense.
Q
Soon there will be more Portugese born in Switzerland than in Portugal. Ditto in France. All Swiss cleaning company employees, supermarket cashiers, stockroom personnel, nurses, waiters and waitresses, department store sales personnel are from Portugal - mostly second generation, some third.
I'm not sure.
But there are reportedly 2 million Portuguese citizens living abroad. This is a massive figure, given that there are around 10,5 million people living in Portugal now. There has already been huge emigration.
Given that you are in Ireland, you understand this issue very well. Portugal does not speak English; there is no Trinity College Dublin or anything even remotely close (I toured several "leading" universities in Portugal a few years ago); there is no major Foreign Direct Investment in world-class enterprises.
Taxes are very high. The Government sector is too big. The 40 years since the collapse of the Salazar regime/dictatorship has not been sufficient to grow a proper administrative infrastructure; instead, there is just bloat and waste.
We all can debate (and have debated) the wisdom and efficacy of the Irish restrucuring since the Crisis of 2008. No matter what one thinks of it, the same cannot be even tried in Portugal if one expects quick results.
An internal devaluation while keeping the Euro would be a disaster, imho. When I was there three summers ago, locals asked my opinion. I told them to bring back the Escudo and Constitutional Monarchy (under the well-liked Duke of Braganca) to implement a massive restructuring of the public sector. They stared in disbelief.
All this is probably inevitable now.
Being a citizen or subject of a king requires defined borders - the EU is the rejection of this ancient Greek principle of the state so those terms are now redundant.
The Irish border is now controlled by a private police force.
I have not looked into it but it would not surprise me if it had Israeli conNections
Speaking from local experience its hard to believe the current official figures of Irish net migration.
Spot on, Willard.
PS - just yesterday i was approached in the centre of me city by a man claiming to be Bosnian
He produced a laminated card explaing he just got out of the plane and needed to feed his kids...........
Expecting to be jumped it was the first time ever I felt uncomfortable during daylight hours in my city.
There is a complete breakdown in trust because of this.
In old masonic towns from cork to foix there was a tradition of being friendly to travellers.
Now you cannot engage with anybody claiming to be in trouble given the liklehood of robbery or injury,
This new dynamic has huge consequences for local trade and interaction in Europe
http://rt.com/usa/211527-representatives-condemn-russia-aggression/
Breaking, Congress passes coldwar 2.0 bill, well i'm pretty sure its bill : h-res-758-russian-aggression
http://www.globalresearch.ca/green-light-to-war-on-russia-legislation-in...
This should be good lol. This will take another nasty swing at the Ruble.
Abe will be jealous.
too many Siestas
Let's solve these problems by sticking a troika/goldman rep in the heart of these european central banks. s/c
I think the Chinese are buying Portugal bigtime....
Someone sure has some love for $CU these past couple of days.
Nothing like a good Port wine with a great piece of chocolate cake...
https://www.youtube.com/watch?v=IxTafqejV6k#t=183
To be blunt, Portugal's demise resulted from an early form of multi-culturalism. At its peak, Portugal imported a bunch of black slaves from its colonies in Africa. (Now Mozambique and Angola). Some were also put to work in Brazil. At that point there were distinct black and white populations in Portugal. Interbreeding during the next 200 years erased that line, along with any hope that Portugal could ever again aspire to greatness.
Whoops, I kinda repeated what you've said in my comment above.
All Latino/Catholic countries are the same, corrupt and inefficient vis-a-vis the Northern Protestant ones. Portugal's problem was compounded by debasing their gene pool with African stock.
Portugal is ROTTEN to the core
'Canned Sardines' would be an apt description for the Portuguese Proletariat.
Looks like another Greece in the making... EU bursting at the seams, but no worries - QE will solve all problems of course, LOL. At least the Chinese are happy with those Portuguese real estate costs...
Oh Portugal Indeed !
All those who came to the Azores meeting in 2003 with GWB, announcing the Saint Alliance of GWB against Saddam, are now paying for their allegiance to a "Scam-damned- to gangbanged Holy Land" conundrum for the sake of king Oil.
1° Oh Espagna !
2° Oh Portugal
3° Oh Grande Bretagna !
Next in line : Italy and France for being surrogates in Libyan shenanigans parlance.
Of course, in the pecking order of things close to Pax Americana's heart, Ireland and Greece, all fleeced for Oligarchy banksta liberties, don't count; no more than Ukraine or Kosovo, lands of thuggery already amply displayed !
Play on land of the free, in Syrac blues. Only youuuu... know how to puleese me, in a chokelock to kill the sweet and innocent.
i live in portugal, and i have suffered to stay in portugal because jobs are disappearing, all the industry,fishing, agriculture, metalwork, was sell to europe in exchange for money for roads, the only thing that has stayed in portugal as the Banks,Insurers, and services, that is taking away the buying power.
Portugal would be better if those imbeciles accept my idea of joining the Brazil as in the past.
Portugal would be a State D'Sea In Brazil as when Dom João VI, fleeing the troops of Napoleon Bonaparte, was established in Rio de Janeiro.
Brazil was a colony of Portugal and Portugal in Europe turned physical colony of Brazil.
The Portuguese Court was in Brazil and here was the State.
Okay that Brazilian and Portuguese people are brothers but the Portuguese of motherfuckers arrive in Brazil and say they are Europeans and Brazilians we are fools, people from third world!
If wonder then why come here?
BRICS is coming as a Tsunami!
hehe!
I would call this the empirical proof that the incessant yelling for "infrastructure investment" is really a call for glorified Keynesian ditch digging.