Wealth from water The country has a long maritime Doing Business in tradition and is now seeking to exploit the sea in fresh ways, writes Victor Mallet PORTUGAL Page 4 FINANCIAL TIMES SPECIAL REPORT | Wednesday April 11 2012 www.ft.com/portugal­2012| twitter.com/ftreports Inside this issue The euro Even in the Resolved to see reforms through depths of the worst recession up to his promise to press scru- in 30 Structural adjustment pulously ahead with the adjust- years, ment programme, establishing a enthusiasm targets are being met is undiminished Page 2 but at enormous cost, reputation for Portugal as the quiet, diligent student among Economy Amid the gloom, writes Peter Wise the eurozone’s three bailed-out some light is beginning to countries. appear Page 2 decision to cancel con- Presenting the conclusions of struction of a high- the third quarterly review of the Banking Bankers will tell speed rail link between agreement by the so-called you how different Portugal Lisbon and Madrid has troika – the European Commis- is from Ireland and Greece Athrown into sharp relief the dis- sion, IMF and European Central Page 2 appointment of Portugal’s hopes Bank – in early April, Mr Weiss, that joining the euro would put who is deputy head of the EC Privatisation Controversial the country on the fast track to mission to Portugal, said Lisbon programme will clear almost becoming a mainstream Euro- had fulfilled the agreement every saleable asset off the pean economy. “almost to the letter”. Compli- state’s books Page 2 Once seen as a milestone of ance was “extraordinarily modernisation, the €3.3bn good”. Reform Commentary by project was abandoned in The government cut the the March, less than a year after an budget deficit from 9.8 per cent country’s greatest imminent financial collapse of gross domestic product in 19th forced the country to follow 2010 to 4.2 per cent last year. century Greece and Ireland in seeking a This was significantly below the novelist is multi-billion-euro bailout from official target of 5.9 per cent, but given a the European Union and Inter- included the one-off impact of new airing national Monetary Fund. revenue from a transfer of bank Page 3 For the indefinite future, pension funds to the state, Europe’s high-speed rail net- equivalent to about 3.5 per cent Politics If the bailout fails, work will stop at the Spanish of GDP. it will not be because of border, after Pedro Passos Coe- Lisbon was nevertheless on political opposition Page 3 lho, Portugal’s prime minister, track for a structural adjust- ruled definitively against build- ment in the deficit amounting to Business climate Even ing the Portuguese stretch of a 7.5 per cent of GDP over 2011 contrarian investors must line that would have connected and 2012, according to the troika consider a series of the two capitals in three hours, report. “This is enormous,” said alarming data Page 4 three times faster than today. Mr Weiss. “This is very ambi- Tourism The industry is In terms of living standards, Pedro Passos Coelho, the prime minister, who took office without any previous government experience, addresses the PSD congress Epa tious.” He also noted that two- since joining the single cur- thirds of fiscal consolidation pinning its hopes on visitors from the newly wealthy in rency, Portugal has moved fur- cost of belatedly adapting its done much to deserve the living tion, measures to strengthen the way forward. He formed a was being accomplished Latin America Page 4 ther away from the rest of economy to life in the eurozone: standards we enjoy. But, like financial sector and wide rang- government coalition with the through spending cuts. The defi- Europe, rather than closing the a debt crisis, painful austerity the 2m people who left Portugal ing economic reforms to tackle conservative Popular party cit target for this year is 4 per Energy Green technology gap as it had hoped. According measures, its deepest recession for Europe from the 1960s, the low growth and weak competi- (CDS-PP), ensuring a comforta- cent of national income, falling has placed Portugal among to Peter Weiss, a European for more than 30 years and generation below 30 is becoming tiveness, seen to be at the heart ble majority in parliament. to 3 per cent in 2013. the vanguard of alternative Commission economist, income record unemployment, 15 per genuinely European. They know of Portugal’s difficulties. Having promised to “go Targets are being met at enor- energy per capita fell from 70 per cent cent in February and is still the state is not going to employ Mr Passos Coelho, whose beyond” the requirements of the mous cost. Public sector employ- states. But of the EU average in 1999 to 63 climbing. One in three people them, that they will have to go centre-right Social Democrats bailout, Mr Passos Coelho told a ees will see their income cut by credentials per cent in 2011 and is expected under 25 is out of a job. out and compete for a job.” (PSD) won a general election PSD congress in March that Por- up to 30 per cent over 2011 and have come to fall to “close to 60 per cent” José Adelino Maltez, 60, a In return for €78bn in bailout less than three weeks after the tugal was engaged in a “tran- 2012. Private sector pay is also at a high this year. political scientist at Lisbon’s funds, the previous Socialist rescue agreement was signed, quil revolution” of economic falling sharply. Social payments cost After the euphoria of becom- Technical University, says: government agreed in May 2011 took office without any previous reform. “The country will not have been reduced and taxes, Page 4 ing a founding member of the “Compared with the suffering to a three-year adjustment pro- government experience, but a have a second chance,” he said. particularly VAT, increased. single currency, Portugal is hav- and effort of many central Euro- gramme based on three main firm belief in the adjustment “We cannot [afford to] fail.” ing to come to terms with the peans, my generation hasn’t components: fiscal consolida- programme as the best and only The prime minister has lived Continued on Page 2 2 ★ FINANCIAL TIMES WEDNESDAY APRIL 11 2012 Doing Business in Portugal Hardships fail to diminish enthusiasm for euro Resolved to see António Pinto Costa, a politics “People who remember how of sacrifice as some central Euro- real terms in 2011 and 2012 – a young biologist, who had previ- Single currency professor at Lisbon’s Institute of poor Portugal was before we pean countries,” says Prof which, to varying degrees, is ously been a BE supporter. The Social Sciences, says: “Euro- joined are not going to say bad Maltez. being replicated in the private hardline Communist party reforms Commitment to the scepticism has increased as liv- things about Europe,” says José “But we haven’t achieved the sector. gained 16 of the 230 parliamen- project remains strong, ing conditions have worsened, Adelino Maltez, a political scien- same levels of education or pro- The Portuguese, however, have tary seats in the election, com- but these feelings have not been tist at Lisbon’s Technical Univer- fessional training.” a tradition of resilience. pared with 15 previously. reports Peter Wise mobilised politically and there is sity. In terms of development, he Portugal, he believes, has Some commentators express Neither party campaigns for through virtually no anti-German or says, Portugal has moved in a begun making those sacrifices, support for the view that it is Portugal to leave the euro, call- nationalistic anti-European senti- short period from a country com- particularly the younger genera- German and French banks that ing instead for “a more social Continued from Page 1 When a waiter accidentally split ment.” parable with Morocco to “some- tion, as the unemployment rate lent unwisely, rather than Portu- Europe”. a tray of beers over Angela Mer- Portugal’s qualification as a where near the suburbs of among under-25s rises above 35 gal itself that is being bailed out. “Euro-scepticism has no party The unemployed, who have kel, the German chancellor, in founding member of the euro- Madrid”. per cent and many graduates But by every discernible sign, political representation in Portu- had their benefits cut, February, a Portuguese TV com- zone in the late 1990s was European structural funds emigrate in search of jobs befit- the Portuguese remain commit- gal,” says Prof Costa Pinto. workers earning the mini- edy programme quickly adapted greeted with euphoria, as the have made an important contri- ting their qualifications. ted to keeping the euro, what- “No extremist groups or patri- mum wage of €485 a month the scene, making the employee country began to enjoy the bene- bution to modernisation and Before joining the euro, the ever the cost. otic anti-European parties have and elderly people receiving a mischievous Portuguese immi- fits of falling interest rates and a higher living standards. But the country kept its exports competi- The radical Left Bloc (BE) lost emerged in the way they have in state pensions of even less, grant intent on revenge for the construction boom fuelled by questionable benefits of some tive through low wages and by eight of its 16 seats in last June’s Austria, the Netherlands, France find it increasingly difficult perceived wrongs a German-led European Union funds. infrastructure investments and devaluing its currency, a policy election. The party had declined and elsewhere.” to make ends meet.