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Is Portugal in danger of returning to being the 'sick man' of Europe?

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That may be a surprising question to some, given that the country is currently very much in the spotlight, hosting the EU presidency, writes Colin Stevens.

But, with some worrying warning signals, it’s still a question now being asked.

Portugal joined the EU in 1986. Back then it was a small-closed economy, with very poor human capital. The country struggled to catch up with its European peers and, from 1995 to 2001, household debt rose from 52% to 118% of disposable income and non-financial corporate debt from 81.5% to 149.8% of GDP.

Portugal was forced to turn to the EU and the IMF for financial assistance.GDP fell 7.9% and employment declined by 13.4% while unemployment surged to 17.5% in 2013.

It is worth remembering that, as relatively recently as 2011, Portugal was mired in a deep recession and was blocked off markets.

Today, Portugal's economy faces a number of fresh hurdles to a swift recovery from the health crisis.

In the first half of 2020, economic activity dropped by 18% compared to pre-crisis levels and, for many, the crisis is a stark reminder of Portugal’s chronic underinvestment in public services and the “hidden” frailty of its economy.

The all important tourism sector is set for a post crisis boom but, for every glitzy new hotel and fancy restaurant in Lisbon, the country’s creaking infrastructure remains.

This is coupled with a total debt close to 120 percent of gross domestic product, which is one of Europe’s highest,

The budget deficit, once 11 percent of GDP during Portugal’s 2010-14 debt crisis, has been almost eliminated under the Socialists but that has come largely at the expense of public investment.

Public investment represented 2.1 percent of GDP in 2018, up from 1.5 percent in 2016 but still less than half of the 5.4 percent registered  back in 1960.

A recent report by the respected International Monetary Fund found Portugal had net public investment of about negative 1.2 percent of GDP in 2016, putting it at the bottom of a list of 26 rich countries, including Greece, Italy and Spain.

Each of these countries have hit the headlines in recent years with endless stories about their failing economies but,oddly, little has been reported by perhaps even worse problems in Portugal.

To make matters worse strikes and protests have been staged recently by public workers, from prison guards to teachers and nurses, demanding better pay.

Economist Steven Trypsteen said, “The Portuguese economy has a number of characteristics that make it more vulnerable to both the initial shock of the pandemic and its aftermath. Fiscal space of Portugal is also relatively low, as the government debt-to-GDP ratio stood at 117% last year. The debt level is high and will increase sharply.”

All this contrasts with recent comments by Portuguese finance minister Mario Centeno,also Eurogroup President.

In a speech headlined “from sick man to poster boy: Portugal’s successful recovery from the euro crisis” he admits the Portuguese economy and society have endured a  “difficult period of adjustment” but that it was is a “good story of an economy reforming and  benefiting from it.”

The results have, he says, been dramatic and the script has changed.

“Today,” he declared, “Portugal is on the news again, but for good reasons.With all this, can we dub Portugal a “poster boy” of Europe? I do believe Portugal’s recovery provides a good example for Europe.”

Despite his optimism there are real challenges ahead with the Portuguese debt still very high. The aim is to reduce  public debt to 102% of GDP by 2022 and more will have to be done to fully restore credit flows.

A recent IMF review of the state of the country’s economy says that, while Portugal is recovering after the crisis, its economy continues to suffer from “meagre growth, weak investment, and competitiveness challenges.”

Its banking sector holds too many nonperforming loans and public debt remains high, says the IMF review which also finds Portuguese economic recovery to be “slow”.

Unemployment has declined since the peak of the crisis but, says the IMF, it is still high, especially among the youth while there is “a vicious cycle” of high nonperforming loans, excessive leverage, and low growth.

Since coming to power in 2015, Prime Minister Antonio Costa’s Socialists have focused single-mindedly on restoring fiscal credibility but some economists fear a lack of public investment is starting to undermine the economy. Worse, this could be storing up trouble should another recession come.

The next big test will come as the country emerges from the crisis. Portugal will receive grants worth more than 4% of GDP over the next two years from the European Next Generation EU fund. Many are asking how effectively will this huge sum be dispersed.

The support package is worth a cool €1.55 billion. This months, Portugal announced it would give around €5 billion from the EU recovery fund to companies over the next five years in a bid to reboot the economy and increase competitiveness after the COVID-19 pandemic.

The Portuguese plan will soon be sent to Brussels and Costa says Portugal aims to come out of the crisis stronger.

But whether that is the case remains to be seen. 

Over the coming weeks, EU Reporter aims to take a closer look at Portugal and whether it really can live up to its 'poster boy' image.

Brexit

Germany’s Merkel urges pragmatic approach to Northern Ireland

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German Chancellor Angela Merkel (pictured) called on Saturday for a “pragmatic solution” to disagreements over part of the Brexit deal that covers border issues with Northern Ireland, Reuters Read more.

Prime Minister Boris Johnson said Britain will do "whatever it takes" to protect its territorial integrity in a trade dispute with the European Union, threatening emergency measures if no solution was found.

The EU has to defend its common market, Merkel said, but on technical questions there could be a way forward in the dispute, she told a news conference during a Group of Seven leaders' summit.

"I have said that I favour a pragmatic solution for contractual agreements, because a cordial relationship is of utmost significance for Britain and the European Union," she said.

Referring to a conversation she had with U.S. President Joe Biden about geopolitical issues, Merkel said they agreed that Ukraine must continue to remain a transit country for Russian natural gas once Moscow completes the controversial Nord Stream 2 gas pipeline under the Baltic Sea.

The $11 billion pipeline will carry gas to Germany directly, something Washington fears could undermine Ukraine and increase Russia's influence over Europe.

Biden and Merkel are due to meet in Washington on July 15, and the strain on bilateral ties caused by the project will be on the agenda.

The G7 sought on Saturday to counter China's growing influence by offering developing nations an infrastructure plan that would rival President Xi Jinping's multi-trillion-dollar Belt and Road initiative. L5N2NU045

Asked about the plan, Merkel said the G7 was not yet ready to specify how much financing could be made available.

“Our financing instruments often are not as quickly available as developing countries need them,” she said

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Brexit

'Whatever it takes', UK's Johnson warns EU over post-Brexit trade

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Britain will do "whatever it takes" to protect its territorial integrity in a trade dispute with the European Union, Prime Minister Boris Johnson said on Saturday (12 June), threatening emergency measures if no solution was found, write Elizabeth Piper and Michel Rose.

The threat by Johnson seemed to break a temporary truce in a war of words over part of the Brexit deal that covers border issues with Northern Ireland, the focus for tensions since Britain completed its exit from the EU late last year.

Despite US President Joe Biden encouraging them to find a compromise, Johnson used a G7 summit to indicate no softening in his position on what is called the Northern Ireland protocol that covers border issues with the British province.

"I think we can sort it out but ... it is up to our EU friends and partners to understand that we will do whatever it takes," Johnson told Sky News.

"I think if the protocol continues to be applied in this way, then we will obviously not hesitate to invoke Article 16," he added, referring to a safeguard clause that allows either side to take measures if they believe the agreement is leading to economic, societal or environment difficulties.

"I've talked to some of our friends here today, who do seem to misunderstand that the UK is a single country, a single territory. I just need to get that into their heads."

His comments came after he met French President Emmanuel Macron, German Chancellor Angela Merkel and top EU officials Ursula von der Leyen and Charles Michel at a Group of Seven summit in southwestern England.

The EU told the British government once again that it must implement the Brexit deal in full and introduce checks on certain goods moving from Britain to Northern Ireland. Britain repeated its call for urgent and innovative solutions to ease the friction.

The province has an open border with EU member Ireland so the Northern Ireland protocol was agreed as a way to preserve the bloc's single market after Britain left.

The protocol essentially kept the province in the EU’s customs union and adhering to many of the single market rules, creating a regulatory border in the Irish Sea between the British province and the rest of the United Kingdom.

Anti-Brexit protesters holding a banner and flags demonstrate outside the Houses of Parliament in London, Britain January 30, 2020. REUTERS/Antonio Bronic
Britain's Prime Minister Boris Johnson, European Commission President Ursula von der Leyen and European Council President Charles Michel remove their protective face masks as they meet during the G7 summit in Carbis Bay, Cornwall, Britain, June 12, 2021. REUTERS/Peter Nicholls/Pool

Since Britain exited the bloc's orbit, Johnson has unilaterally delayed the implementation of some provisions of the protocol, including checks on chilled meats such as sausages moving from the mainland to Northern Ireland, saying it was causing disruption to some supplies to the province.

"Both sides must implement what we agreed on," von der Leyen, European Commission president, said after meeting Johnson alongside Michel, the European Council president.

"There is complete EU unity on this," she said, adding that the deal had been agreed, signed and ratified by both Johnson's government and the bloc.

Germany's Merkel said the two sides could find pragmatic solutions on technical questions, while the EU protected its single market.

Earlier this week, talks between the two sets of negotiators ended in an exchange of threats over the so-called "sausage wars". An EU official said at the G7 that there was a need for the rhetoric to be toned down.

The head of the World Trade Organization said she hoped the tensions would not escalate into a trade war.

The United States has also expressed grave concern the dispute could undermine the 1998 Good Friday peace deal.

That agreement largely brought an end to the "Troubles" - three decades of conflict between Irish Catholic nationalist militants and pro-British Protestant "loyalist" paramilitaries in which 3,600 people were killed.

Though Brexit was not part of the formal agenda for the G7 summit in the English seaside resort of Carbis Bay, it has more than once threatened to cloud the meeting.

France's Macron offered to reset relations with Britain as long as Johnson stood by the Brexit deal - a characterisation of the meeting that was rejected by the British team. Read more.

Brexit has also strained the situation in Northern Ireland, where the pro-British "unionist" community say they are now split off from the rest of the United Kingdom and the Brexit deal breaches the 1998 peace deal. But the open border between the province and Ireland was a key principle of the Good Friday deal.

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EU

Keeping the UEFA EURO 2020 championship safe

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Between 10 June and 12 July 2021, Europol will host an operational centre to support safety and security during the UEFA EURO 2020 football championship. Coordinated by the Dutch Police, the International Police Cooperation Centre (IPCC) of the National Football Contact Points will host about 40 liaison officers from 22 participating and hosting countries. This special operational set-up is created to enable swift cooperation and provide the necessary operational support for a safe and secure championship.

The IPCC will serve as a central information hub for national law enforcement authorities. To that end, Europol has created a special Task Force EURO 2020 to enable keeping officers on the ground 24/7 to easily exchange information and swiftly receive leads on ongoing investigations. The operational activities will focus on public safety and criminal threats, which may threaten security during the tournament. Enforcement authorities will target threats such as cybercrime, terrorism, match-fixing, trafficking counterfeit goods including fake COVID-19 certificates, and other intellectual property crimes.

Europol’s Executive Director, Catherine De Bolle, said: ‘The UEFA EURO 2020 championship is a unique tournament both for football and for law enforcement. With 24 national teams playing in 11 cities across Europe, teaming up is paramount for the safety of the tournament. Europol will enable this cooperation by hosting the dedicated operational centre. Backed by Europol’s capabilities, officers on the ground will be better prepared to ensure a smooth and safe championship.’

The IPCC’s chief of staff, Max Daniel, said: ‘Combining information about public order issues, supporters, places of stay and travel movements by road, air and rail results in an up-to-date and integrated picture. Being able to easily share that information between countries has proven to be very valuable in the past. Police intelligence officers of all participating countries are doing their utmost to ensure that this unique UEFA EURO 2020 championship will be as safe as possible.’

IPCC UEFA EURO 2020 Participants (total number):

EU Member States: Austria, Belgium, Croatia, Czechia, Denmark, Finland, France, Germany, Hungary, Italy, Poland, Portugal, Romania, Slovakia, Spain, Sweden, the Netherlands. 

Non-EU Countries: Azerbaijan, North Macedonia, Russian Federation, Switzerland, Turkey, Ukraine, United Kingdom.

Organisations: INTERPOL and UEFA

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