Portugal Throws Open Europe’s Them-And-Us Austerity Divide

Photographer: Francisco Seco/AP Photo

Facing another 2.3 percent contraction in the economy this year, Passos Coelho has pledged no more tax increases and said last month that his government would focus on reducing spending to generate 4.8 billion euros through 2015. Close

Facing another 2.3 percent contraction in the economy this year, Passos Coelho has... Read More

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Photographer: Francisco Seco/AP Photo

Facing another 2.3 percent contraction in the economy this year, Passos Coelho has pledged no more tax increases and said last month that his government would focus on reducing spending to generate 4.8 billion euros through 2015.

When it comes to sharing the burden of austerity, some Portuguese feel more equal than others.

Half way through his four-year term, Prime Minister Pedro Passos Coelho is trying to curb popular resentment over what opponents say is a widening gulf between private employees and about 600,000 public workers who have mostly stayed immune to mass job cuts. Portugal’s two biggest unions scheduled a general strike for tomorrow, the second since the country asked for international aid in April 2011, to protect benefits, including a 35-hour working week and early retirement.

“It’s unfair for the public sector to have certain benefits that don’t exist in the private sector,” said Francisco Rodrigues, 78, who runs a clothing store opposite the parliament building in Lisbon.

The sentiment is one that echoes across southern Europe from the Algarve in Portugal to Xanthi in eastern Greece as debt crisis-hit countries unpick years of overspending and largesse.

What’s bothering the Portuguese isn’t just that austerity helped prolong a recession and sent unemployment to a record 18 percent, it’s also that the government used taxation more than those in Greece and Ireland to try to narrow the budget deficit. Some workers on the state payrolls are perceived to have escaped the deterioration in living standards being felt by others.

Photographer: Mario Proenca/Bloomberg

A municipal worker pushes a dust cart past a graffiti covered hoarding at Comercio plaza in Lisbon. Close

A municipal worker pushes a dust cart past a graffiti covered hoarding at Comercio plaza in Lisbon.

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Photographer: Mario Proenca/Bloomberg

A municipal worker pushes a dust cart past a graffiti covered hoarding at Comercio plaza in Lisbon.

Old Habits

“Today, there isn’t a single member of the government who speaks in public without having to face protests,” said Pedro Magalhaes, a politics researcher at the University of Lisbon.

Labor groups UGT and CGTP will try to grind Portugal to a halt tomorrow. They expect schools to shut, hospitals to work with emergency staffing, and buses, trains and flights will be canceled. It will be the first nationwide walkout since November 2011 and only the fourth of the past 25 years. Non-state workers were invited by both unions to join the strike.

“We expect the country to come to a standstill as people are tired of the government’s attack on their rights,” said Armando Farias, a member of CGTP’s executive committee.

The yield on Portugal’s benchmark 10-year bonds touched the highest in six months yesterday before dropping 8 basis points, or 0.08 percentage point, to 6.82 percent as of 9:33 a.m. Lisbon time today. The extra rate over German bunds has narrowed to 5.04 percentage points from a euro-era record of 16 percentage points in January 2012.

Flying Economy

When Passos Coelho, 48, came to power, less than two months after the bailout with the European Union and IMF was agreed, he tried to address them-and-us concerns by banning his ministers from traveling in business class on short-haul flights.

The prime minister sat in economy on a commercial airplane on his first trip as premier to an EU summit to show his government’s commitment to cutting costs laid out in the 78-billion-euro ($104 billion) rescue program. Rodrigues called it “a symbolic move that ended up backfiring.”

If elections were held today, Passos Coelho’s Social Democrats would win 24.8 percent of the vote, compared with 36.9 percent for the main opposition Socialist party, according to a survey by Eurosondagem published on June 7. He won the election two years ago with 39 percent of ballots.

Facing another 2.3 percent contraction in the economy this year, Passos Coelho has pledged no more tax increases and said last month that his government would focus on reducing spending to generate 4.8 billion euros through 2015.

Doctors’ Pay

The announcement was made four months after the International Monetary Fund called on Portugal to trim spending on wages and pensions, which together account for more than half of government expenditures that aren’t for interest payments.

“It would seem impossible to generate the government’s spending reduction goals without changes in these two areas,” the IMF said in its January report. “After controlling for purchasing power, the remuneration packages for doctors are above those in Germany, Norway and Italy.”

The government is also considering job cuts, a salary review for public workers, increasing the number of hours they work per week to 40, in line with private companies, and penalties for workers who chose to retire before the age of 66, Passos Coelho said in a May 3 speech in Lisbon.

For a number of politicians and Constitutional Court judges, the benefits that come from working for the state look set to remain intact. Some are eligible to retire after 12 years of contributions, compared with 40 years for the majority of the population, according to two separate laws published on the websites of the country’s Parliament and Constitutional Court.

Equal, Unequal

“There may be some careers in the state that have no parallel in the private sector and thus require specific treatment,” Luis Marques Guedes, the minister for parliamentary affairs, told reporters last month following a cabinet meeting. “The principle of equality means one has to treat as equal what is equal and as unequal what is unequal.”

The same group of judges on April 5 blocked a government plan to suspend the equivalent of a month’s salary to state workers this year as it violated “the principle of equality” between those in the private and public sector, they said.

“What’s really unfair is to have judges and politicians who are immune to the austerity measures imposed upon the majority of the population,” said Antonio Marinho Pinto, chairman of Portugal’s Lawyer’s Association, most of whose members are self-employed. “This is a scandal. Portugal cannot have first class and second-class citizens.”

To contact the reporter on this story: Henrique Almeida in Lisbon at halmeida5@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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