SEPTEMBER | 1

IPRIS Lusophone Countries Bulletin 2011 REVIEW

33 IN 2011: THE DOWNGRADE OF ALL FEARS Paulo Gorjão IPRIS Lusophone Countries Bulletin: 2011 Review | 33

Portugal in 2011: The Downgrade of All Fears PAULO GORJÃO Researcher, Portuguese Institute of International Relations and Security (IPRIS)

In 2011 Portugal made international headlines for the of confidence in Portugal’s solvency, as opposed to a worst possible reasons. As much as one might wish to quick and cold effort to make a profit by betting against look beyond the structural implications, Portugal’s debt Portugal, is up to debate. Presenting a common and woes cast the country into the same category as Greece, united political front that could agree and approve a demanding the attention of the country’s leaders more number of structural measures – even more austere than at any time since its return to democracy. than the previous ones enshrined in the ill-fated row of That unmistakably constrained and influenced the Stability and Growth Pacts (PECs) – was thus forcibly and country’s prospects in a significant number of ways. rapidly needed. This includes changes at the top of the Portuguese In that sense, after intense bickering and a series of political system, chiefly the government’s collapse due highly publicized negotiations, the government of the to the overwhelming pressure of past mistakes and Socialist Prime Minister José Sócrates managed to international market forces. What’s more, given that reach an agreement with the main opposition Social “the recourse to foreign assistance [was] a hard blow to Democratic Party (PSD) at the end of 2010 and thus the national prestige and reputation”,1 it is also safe to secure the approval of the 2011 budget through the say that the challenges to Portugal’s foreign policy grew Portuguese Parliament. The outlook was grim enough exponentially. to prevent any kind of celebratory mood back in In that sense, any analysis of Portugal’s course of action since international economic forecasts for the Eurozone during 2011 has to start by precisely considering the ill- continued to contradict any optimistic or stable fated economic features that evidently scarred the year. projections for such economies, Portugal included. This article begins with a description of how Portugal’s For all purposes, the harsh reality of economic data economy kept itself above the water until 2011. The continued on reflecting itself in Portugal’s rating abroad. effects that such a decision had on Portugal’s ruling The situation inevitably reached a boiling point when government and on the election of a new one will also on 11 March Finance Minister Fernando Teixeira dos be brought into front display. On the other hand, this Santos announced the need for a new austerity package article will also provide a closer scrutiny of the events, as a “preventive measure” against the bond market’s stages and partners that received particular focus within wrath.2 This de facto assumption that previous attempts Portugal’s foreign policy agenda throughout the year. had not succeeded in tackling Portugal’s structural Finally, some conclusions will be drawn with an eye problems triggered a new political crisis when it became toward what’s ahead for Portugal in 2012. clear that it would have no chance of being approved in the Parliament. On 23 March such a package was Economic downgrading indeed rejected, prompting Prime Minister Sócrates’s Following bailout requests by Greece and Ireland, resignation and feeding the downturn spiral of Portugal’s Portugal’s economic vulnerability grew to unprecedented economy. heights. Looking for the next weakest link within the With rating agencies successively cutting the rating Eurozone, international investors soon began to eye classification for Portugal, the costs of borrowing abroad Portugal’s economy and they quickly sold off Portuguese soon grew to unsustainable levels. By 6 April interest debt, though the degree to which this expresses a loss rates for five-year sovereign debt bonds had climbed

1 Paulo Gorjão, “Portugal e a ajuda externa: um duro golpe no prestígio nacional” 2 “Governo avança este ano com medidas adicionais este ano para poupar 0,8% (i, 12 April 2010). do PIB” (Lusa, 11 March 2011). IPRIS Lusophone Countries Bulletin: 2011 Review | 34

to 10% while ten-year bonds reached nearly 9%. It was country’s rating from Baa1 to Baa2.4 The general outcry therefore evidently clear that Portugal was dangerously over the criteria behind such a decision was significant bordering a quasi-default scenario in which it would but in the end proved meaningless since it was replicated not be able to pay its debts to creditors. As such, the by other rating agencies who all saw developments in amount of pressure to request international assistance Europe and in Portugal as continuously untrustworthy of became simply unbearable, and on that same day José better evaluations. Sócrates finally asked the European Union (EU) to step Within this context the course for the remainder of 2011 in, place Portugal under the umbrella of its safeguarding was all but settled. Bound by the terms agreed with mechanisms, and thus “guarantee the country’s financing the international troika, the new government found its conditions”.3 objectives and priorities inevitably constrained by an After almost a month of negotiations with EU and ‘external strait jacket’ as it tried to enforce and jumpstart International Monetary Fund reforms on the ground without (IMF) officials and with the In 2011 Portugal made provoking an recessive mood that release of more dismaying data could hamper economic recovery. in the background – the official international headlines However, bad news broke again announcement, for example, that when the financial troubles of the Portugal’s GDP deficit in 2010 had for the worst possible Autonomous Region of Madeira in fact reached 9.1% as opposed had to be included in revised to the 8.6% previously disclosed reasons. Following growth projections. Nonetheless, – a deal was finally brokered. Its thanks to the transfer of 26 billion content offered a three-year, 278 bailout requests by from the banking sector’s pension billion EU-IMF-ECB joint bailout Greece and Ireland, funds to the state’s control, program in return for the country’s Portugal was able to reach an commitment toward slashing its Portugal’s economic annual deficit bordering 4.5%, budget deficit to 5.9% in 2011 and significantly lower than what had then reduce it to 3% by the end of vulnerability grew been agreed earlier. Although it 2013 – when Portugal could foresee was only made possible through a predictably return to issue long- to unprecedented exceptional means, this Pyrrhic term debt in the market. Moreover, victory allowed Portugal to signal an overwhelming number of heights. The situation its commitment to reform and fundamental reforms, justice and inevitably reached actively seeking to lift itself up health sectors among others were from this crisis. also to be implemented during a boiling point that a tight schedule with the aim of Political unfolding improving Portugal’s general triggered a political With economic developments economic competitiveness while buffeting Portugal all year, it being consistently evaluated by the crisis prompting Prime would be a mistake to overlook the troika of representatives from the significant political ramifications international lending institutions. Minister Sócrates’s that the country also faced. On 2 However, even with such an resignation. January incumbent Aníbal Cavaco overhaul agreement coupled with a Silva managed to take advantage change of political cycle, Portugal of both a relatively innocuous only managed to get a few weeks of breathing room until first term and of his opposition’s disarray to secure five the visible indecision among Europe’s highest echelons of more years as President of the Republic. This new term decision-making, and the persistently unfolding situation heralded an institutional dynamic considerably different in Greece incited renewed fears of the crisis spreading than the preceding one. Indeed, although Cavaco Silva to other countries, thus potentially bringing about and Sócrates belonged to opposing political parties, they the end of the euro as a whole. Amid all this, the final previously succeeded in achieving a sizeable degree of dent in Portugal’s public reputation came on early July ‘loyal’ cooperation at the helm of the country. But with 2011 when, despite the recent parliamentary elections, the pressure growing around Portugal’s economy by Moody’s rating agency cited a “growing risk that Portugal the day and Sócrates’s popularity waning – despite his will require a second round of official financing before renewed mandate in the 2009 parliamentary elections it can return to the private market” as it reduced the – Cavaco Silva undoubtedly felt himself more at ease to

3 Ana Luísa Marques, “Governo já pediu ajuda financeira a Bruxelas” (Jornal de 4 Andrei Khalip and Walter Brandimarte, “Moody’s cut Portugal to junk, warns on Negócios, 6 April 2011). 2nd bailout” (Reuters, 5 July 2011). IPRIS Lusophone Countries Bulletin: 2011 Review | 35

make his stand. That much was clear during his oath of back when it was first signed in early May.7 His hands office on 9 March, through which he delivered what many were therefore tied to the upcoming austerity drive even then called “the most politically violent speech” by a before he took office. democratically-elected President, including references As for the new cabinet, it could hardly be considered a to a “lost decade of growth” and calls for a “civic shock” ‘team of rivals’ but it is still one that includes different by the Portuguese society.5 factions and personalities. Take the case of Defense The announcement of the need for the so-called PEC Minister José Pedro Aguiar-Branco – who had previously IV immediately found echo ran against Passos Coelho in the main opposition party in the party’s primary, but – clearly emboldened by the While Portugal’s economic who was called this time President’s fiery speech – and around to join the cabinet – as such the government’s foundations collapsed and or even the role of Foreign fate was inevitably sealed. As its political leadership was Minister assigned to Paulo noted, on 23 March Sócrates Portas himself. Portas tendered his resignation to dealt with an unscheduled had already been Defense Cavaco Silva who promptly Minister in a previous PSD- accepted it and thus scheduled renewal, the country’s CDS coalition government new elections for 5 June 2011. from 2002 to 2005 and his Leading the PSD against foreign policy continued return to the country’s Sócrates’s highest offices certainly (PS) was Pedro Passos on its course. True, the adds a considerable dose Coelho who rode the wave of geopolitical ramifications of political gravitas, not growing discontent against the least of which because the beleaguered government of the international crisis of his instrumentality in and quickly took the lead in sustaining a workable ruling this race. On Election Day created more concerns than coalition. he thus managed to obtain Overall, after six months 38.65% of the votes while the Portuguese diplomacy on the job, the governing the PS was left with 28.06%. styles are substantially However, two factors spoiled might have probably expected different, but as expected victory celebrations. First, at the beginning of the year. the content is – and will even though he achieved remain for the next few a clear mandate, Passos Nevertheless, such factors years – invariably swayed Coelho’s win still fell short of by the international context. a desirable absolute majority did not entirely overshadow However, it is interesting to – indispensable to the kind note that even with multiple of structural reforms he Portugal’s foreign policy tax hikes and painful had originally envisioned to spending cuts the coalition carry out – and as such, a which continued on the government has managed coalition government with tendency of constantly to retain its popularity in the the smaller Democratic latest polls while showing and Social Centre-People’s “punching above its weight” no sign of internal cracks Party (CDS-PP) and its or of seeking to backtrack leader Paulo Portas became in recent years. the announced spree of the most rational choice to structural reforms.8 make.6 Second, as much as Passos Coelho would have probably wanted to, he Change and continuity in foreign policy could not entirely detach himself from the legacy of the Paradoxically, while Portugal’s economic foundations Socialist government because he also had to face intense collapsed and its political leadership was dealt with domestic and international pressures. Moreover, he an unscheduled renewal, the country’s foreign policy had committed his party to the terms enshrined in the admiringly continued on its course. True, the geopolitical memorandum of understanding with the lending troika ramifications of the international crisis created more

5 Nuno Simas, “Cavaco arrasa Governo e apela ao “sobressalto cívico” dos por- 7 “Passos envia carta a troika e declara ‘total comprometimento’” (Sol, 5 May tugueses” (Público, 9 March 2011). 2011). 6 Sofia Rodrigues e Nuno Simas, “PSD e CDS prometem Governo “forte” e para 8 Francisco Teixeira, “O ano em que tudo a ‘troika’ mudou” (Diário Económico, 27 “quarto anos”” (Público, 16 June 2011). December 2011). IPRIS Lusophone Countries Bulletin: 2011 Review | 36

concerns than the Portuguese diplomacy might since it reflected primarily the change in government and have probably expected at the beginning of the year. the respective new holder of the Foreign Ministry.12 Nevertheless, such factors did not entirely overshadow In this evolving context, it is also worth of noting the Portugal’s foreign policy which continued on the tendency focus reserved for the ‘new’ destinations that, together of constantly “punching above its weight” in recent years.9 with Lisbon, increasingly form the priority axis for the This concerned the non-permanent seat at the United country’s foreign policy (namely Brasília and Luanda). Nations (UN) Security Council won by Portugal in late Regarding Brazil, Sócrates made sure not to miss Dilma 2010. That alone provided a high- Rousseff’s inauguration profile stage with a myriad of on 1 January 2011 in a bid international contacts year round, After acquiescing to an to showcase deference regarding a number of security for the outstanding issues and pressing crises. international bailout, bilateral relations while One particular international purposely laying the development, though, eventually Portugal was invariably ground for potential new grabbed the world’s focus dependent on an European Brazilian investments in and “added a new dose of the Portuguese economy. responsibility to Portugal’s term in pro-active and unanimous Rousseff then paid a brief the Council”: the Arab Spring and, visit to Portugal in March, more specifically, the unraveling approach to the crisis. but the domestic mood situation in Libya.10 fuelled by Sócrates’s own As violence erupted into an open That in turn often led resignation stymied any conflict between Muammar major developments. Gaddafi’s regime and the National to internal and external On the other hand, as if Transitional Council (NTC) impressions that Portugal confirming the cross- opposition forces, Portugal quickly cutting nature of Brazil found itself in charge of the UN’s was overly siding with the as an inherent partner, new Sanctions Committee on after he took office Passos Libya and was thus included in countries leading the drive Coelho also traveled to backstage international diplomacy. Brasília on 27 October Nevertheless, Portugal also for severe sanctions and with the scheduling of an sought not to immediately jump overdue bilateral summit on the bandwagon of international more austerity measures, for 2012 and the extensive recognition of the NTC’s legitimacy i.e. Germany in particular. privatization program back as the sole representative of the home high on the agenda.13 Libyan people, and thus ended up However, given the need to A similar pattern involved taking its time to consider all the Angola. After years pros and cons of such a move.11 signal full compliance with of successive efforts This was symptomatic of the in deepening ties and general carefulness displayed in the assistance program, improving mutual economic the first months of this crisis by the and business opportunities Portuguese government evidently there was little else that in both countries,14 the keen on securing and preserving could have been done. bilateral relation reached the significant political-economic a point that transcended investments made throughout the changes of government in entire Maghreb region during Sócrates’s tenure. When Portugal. For example, not only did Luanda comprise the side effects of the Arab Spring reached Syria, the one of the first stopovers for Foreign Minister Paulo reaction of Portuguese officials was slightly different Portas abroad, but he also managed to reach a successful agreement with his Angolan counterpart on 15 September regarding traveling visas (long considered

9 Paulo Gorjão, “Portugal in 2010: Punching above its weight” (IPRIS Lusophone Countries Bulletin: 2010 Review, 2011), pp. 30-34. 12 See Pedro Seabra and Paulo Gorjão, “A sense of déjà vu: Portugal and the regime change in Syria” (IPRIS Viewpoints, No. 82, January 2012). 10 Pedro Seabra, “First impressions: Portugal and the UNSC eight months on” (IPRIS Lusophone Countries Bulletin, No. 23, September 2011), pp. 3-8. 13 “Passos Coelho acorda com Dilma Rousseff cimeira Brasil-Portugal em 2012” (Lusa, 28 October 2011). 11 This would only happen on 28 July, after the change of government in Portu- gal. See Paulo Gorjão, “Portugal and the recognition of the National Transi- 14 See Pedro Seabra and Paulo Gorjão, “Intertwined Paths: Portugal and Rising tional Council in Libya” (IPRIS Lusophone Countries Bulletin, No. 21, July 2011), Angola” (South African Institute of International Affairs, Occasional Paper No. pp. 1-2. 89, August 2011). IPRIS Lusophone Countries Bulletin: 2011 Review | 37

to be a thorn in the way of greater exchanges between invariable necessity of trying to pinpoint possible areas the two countries). What’s more, Passos Coelho himself through which Portugal will seek to minimize the damage visited Luanda on 17 November with the purpose of done to its external image, open potential new markets, dispelling any possible rumors that Angola would receive attract increased foreign investments, and subsequently less focus under his term. help the country lift itself up of the present economic Finally, the European context was purely inescapable and financial situation. Foreign policy orientations and during 2011. As the EU struggled to present a common strategy thus gain an added relevance in this matter. front against the risk posed by Greek contagion, Portugal Bearing in mind this constrained context, one can then ended up caught in the middle speculate as to some of the targets of the firestorm. Discussions within Portugal’s external agenda regarding the European Financial The need for external in 2012. Continuing a trend already Stabilization Mechanism (EFSM)/ financial assistance, brought into motion in mid-2011, European Stability Mechanism Latin America will receive more and (ESM) or the terms of assistance the loss of prestige, more Portuguese interest as the to Greece were relevant and business opportunities, sustained urgent to Portugal as well. and the unexpected by growing high-level political However, after acquiescing to an contacts, continue surging in international bailout, Portugal start of a new political countries like Colombia or .16 started to appear more a part Moreover, given recent bilateral of the problem instead of a cycle all comprised courtesies it is also safe to say that part of the solution. Its stance developments that in “common political and economic in delicate negotiations, such interests between Portugal as the ones surrounding the one way or the other and Venezuela will override intergovernmental changes [any] ideological differences or to the European Treaties, was implied a considerable personal affinities” that might permanently tied up to the fact have arisen with the change of that the country was invariably change of priorities, government in Lisbon.17 As for up dependent on a pro-active and north in Washington, Portas’s own unanimous approach to the crisis. and that will most likely Transatlantic views are publically That in turn often led to internal continue to effect the well known (he has already met and external impressions that with US Secretary of State Hillary Portugal was overly siding with national agenda for Clinton on 28 September), but the countries leading the drive eventual greater bilateral ties for severe sanctions and more years to come. will be highly dependent on the austerity measures, i.e. Germany evolution of several pressing in particular. international security issues and on However, given the need to signal full compliance with how well Portugal succeeds in remaining relevant for US the assistance program in order to regain some much- interests. Portugal’s presence in the UN Security Council needed credibility, there was little else that could have until the end of 2012 can constitute, in this case, the main been done to fight off such views. For all purposes, the driver for more regular and deeper consultations. number one goal for Portuguese diplomacy became one More unusual destinations will focus on several emerging and the same: above all things, “the improvement of powers in Asia. With privatizations of several Portuguese Portugal’s perception abroad”.15 companies at full steam, investments from the East are gradually seen as a viable alternative to disillusioned Conclusions Western investors.18 As such, bearing in mind the need It is clear how 2011 was tainted by both direct and indirect to properly court the political authorities behind such consequences of the financial debacle that hit Portugal. potential flows and present the country as an attractive The need for external financial assistance, the loss of market, Portas is scheduled to visit China and India prestige, and the unexpected start of a new political cycle during the first semester of 2012.19 Likewise, Turkey will all comprised developments that in one way or the other implied a considerable change of priorities, and that will 16 Pedro Seabra, “Is Portugal rediscovering Latin America?” (IPRIS Lusophone most likely continue to effect the national agenda for Countries Bulletin, No. 24, October 2011), pp. 3-6. years to come. But amid this depressing scenario lies the 17 Paulo Gorjão, “Portugal and Venezuela: continuity in times of change?” (IPRIS Viewpoints, No. 60, June 2011), p. 1. 18 “China e Índia são estratégicas na expansão económica” (Lusa, 6 January 2012). 15 “Prioridade é “melhorar percepção de Portugal no exterior”” (Lusa, 18 July 2011). 19 “Portas em visita ao Oriente” (, 7 January 2012). IPRIS Lusophone Countries Bulletin: 2011 Review | 38

be included in this lot, but such a stop will be inevitably surrounded by additional interest. Indeed, given Portas’ previous negative remarks over a possible entry of Turkey in the EU20 – expressed significantly before he was Foreign Minister one might add – it is still unclear if the Portuguese official position towards such matter has changed or if it will remain traditionally uncompromised. Finally, Brasília and Luanda are also bound to continue receiving meaningful attention as Portugal’s foreign policy unequivocally assumes such countries as central cornerstones of its external projection. Naturally, this will primarily happen at the expenses of the EU in light of the perceived excessive weight that European markets have held not only on Portugal’s trade balance but also on its foreign agenda in recent years. Whatever accomplishments Portugal achieves outside of Europe will be thus heralded as clear confirmations of the new political reorientations in Lisbon. The question left unanswered lies precisely with the chances of this kind of recalibration working to Portugal’s advantage. Indeed, given the developments that 2011 unleashed on the country, it would be easy to write off any optimistic mood for the time being. The number of varying internal and external factors that can dictate the success or failure of the country’s redemption is simply too volatile and too unpredictable to even risk the slightest of predictions. However if realism prevails over optimism in setting the course for Portugal’s recovery in 2012, it’s possible that Portugal might have a shot of recovering the credibility it lost in 2011.

20 “Paulo Portas não quer Turquia na UE” (Lusa, 12 May 2007). IPRIS Lusophone Countries Bulletin: 2011 Review | 51

Editor | Paulo Gorjão assistant editorS | Kai Thaler • Sean Goforth DESIGN | Atelier Teresa Cardoso Bastos PRINTING | Europress

Portuguese Institute of International Relations and Security (IPRIS) Rua Vitorino Nemésio, 5 - 1750-306 Lisboa PORTUGAL http://www.ipris.org email: [email protected]

IPRIS Lusophone Countries Bulletin Review is a publication of IPRIS. The opinions expressed are solely those of the authors and do not necessarily reflect the views of IPRIS.

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