Do not believe the official story

Today we note that the recession (the retraction of the economy) in Portugal in 2012 by the European Commission is being estimated to 3%  A short time ago the prevision from the Commission was closer to 2%. We currently see numbers already starting to invalidate the 2.8% estimated by the government.  It will of course put the whole 2012 state budget at risk which started being negotiated in parliament just today.

Only politicians and economists working for official entities such as the Portuguese government, OECD, ECB, the European Commission, the IMF etc. seem to believe these numbers.  The real numbers will be much worse - or I will have to eat my old hat.  The risk of the latter is minimal as anybody with an iota of common sense and an calculator can see where we are heading.

I believe a few responsible leaders in Portugal know the sad truth.  They perhaps keep quiet not to create panic.  Portugal is broke and will need to soon negotiate help - at a minimum a technical default.  In this climate of international crisis there is no easy way out - on the contrary - everything will be more difficult.  There may not be any money available for rescue packages if (when?) countries like Italy and Spain start floundering.   

The  austerity measures, much needed savings in the public sector, initially will add to the retraction of the economy.   Mainly because there are basically zero initiatives to create growth.  On the contrary the already high tax burden on people and companies producing is rising dramatically.  This combined with a huge drop off in internal demand will break half of the shops and companies in Portugal.  This process is already started.

The government seem to at least theoretically to understand the only way out of the crisis is by producing more.  Only producers are paying the bills.  The whole public sector and everybody receiving money or services from the public sector live off producers.   It is simply not possible to live spending more than we produce.

However, the actions taken by the government are so far only short term stop gap measures nearly completely ignoring the needs of the productive and entirely ignoring the need for more and new producers (private enterprise) of which exporters are the most valuable.  Some announced measures are promising, but have so far stayed on paper where the ink is still wet.  See here and here. 

You just need to look at Greece, to see where we are going.  You hear repeated constantly, that Portugal is not Greece or the other PIIGS, but then where is the explanation to why it seems we have the same problems and all work on similar measures?  Portugal is not Greece.  Portugal is Greece 6-12 months ago.

Stupidity has created huge amounts of public debt above 100% of the GDP with a burden of interest that will soon surpass 5% of the GDP and is impossible to pay. Combined with a badly functioning  unproductive public apparatus with bureaucrats living in an alternative reality, intertwined with nepotism, politics and a strong mix of public/private interests there are no easy solutions.

The only solutions available will be draconian such as the prime minister's plan announced today to cut down by 43% the public sector by 2014 - in three years only - it seems implausible.  I would think it impossible without cutting public salaries and all pensions to half.  On top of that half of the public servants may have to be fired.  It may also be the only way to have a chance to lower the debt.  I am not sure this will be politically possible as the effects on Portuguese society will be devastating.  Only if combined with a strong civic involvement and movements do I foresee a possibility.

Today the Greek unemployment figures for August were announced.  Since the crisis started, unemployment has gone up from 355000 to 908000.  That corresponds to a current 18.4% and a whopping 43.5% youth unemployment.  I want you to look at these figures just once more.  They. Will. Be. The. Reality. Here. Soon.  And they may very well become worse.

You know the current Portuguese figures and the official previsions?  The current unemployment is 12.5% and the alternative reality economists are giving previsions of 13% to 13.9% for 2012.  This is of course bull - a minimum 25% of all companies and shops will have closed in Portugal by the end of 2012.   A minimum of 200000 families will go broke.  The main stream media (and the government) has been very quiet about current youth unemployment in Portugal as the number is shocking:  27.1% - the 4th worst in Europe.  Our neighbor Spain is the leader with an unsupportable 48%.  Furthermore, be aware that youth unemployment is the number for unemployed young people between 15 and 24 and it does not count young people studying.  Therefore the real youth rate is probably around 50% more.  In other words.  If you are young and looking for a job - nearly no matter your qualifications - you are screwed.   Hence the dreadful defeatist destructive official message from the Portuguese government:  Emigrate - there is no future here.

Portugal will soon reach Spanish and Greek numbers.   Can you imagine what that will do to the economy and the cohesion of society?  The crisis is no longer theoretical - even though we are barely feeling the big one coming up.

I usually exaggerate and add a few attempts of being funny to my articles such as jokes, funny cartoons or relevant pictures.  But this is the reality, utterly serious and not a joking matter.  I imagine you are revolted - specially if you are living here in Portugal.  It will take much suffering and hard work to overcome the very difficult times - years - ahead.

I wish we could at least have the satisfaction of seeing the responsible persons: politicians, corrupt officials, greedy dishonest private sector managers and "the boys" being punished for bringing the country into this position during the last at least 20 years - but that will not happen - on the contrary they will get to keep most of their ill gotten gains and will be the ones least affected by austerity.  Maybe some kind of truth commissions such as those used in South Africa after apartheid may bring some closure to the serious crimes committed.

On the other hand, I do believe that the hard lessons learned will help to prevent it happening again in the future and permit creating a more healthy democracy for the people by the people.  The people deserve it.

No public manager to out earn the PM

I must say I am perplexed.  The government is punishing "the boys"?  This is more revolutionary than some revolutions.

Check this out:

The statute of public employees has been changed today.  It has been approved that:

• Public managers may not earn more than the prime minister (he earns approximately 100000 euros per year) 
• There will be exceptions for public companies in commerce competing with other companies.  Examples of such public companies are TAP and CGD (Bank owned by the state).  In these cases managers may be limited to not earn more than the average of the three last years at their previous job.
• Management bonus will be limited to 50% of the annual wage and depend on positive results (positive results - revolutionary!)
• No more free credit cards as a way to inflate the salary and cheat the tax man
• Public managers are often given a car.  They get it as new and change every three years.  That may continue.  But the managers will no longer be allowed to "buy" the car for 10% of its original value after three years
• Now it gets crazy:  Candidates for managers in the public sector will have to be evaluated and their qualifications checked according to their curriculum
• Pensions and salary may no longer be accumulated
• The number of directors for a public entity is limited to four
• They can be fired if they do not perform according to contracts
• Their salaries must be comparable to high level public management
• They will stay on for 5 years instead of 3
• Direct savings are estimated at 5 to 6 million per year
• And now it gets insane:  The directors will be chosen through selection - they will have to actually compete for the job

Saint?

We finally have a government worthy its name.  There be idealists and honest people in it?   I thee salute, Mr. Prime Minister Passos Coelho.

I can feel tears of joy in the corners of my eyes.  The world is beautiful.  Good beats evil any time.  Peace and flower power...





WAIT A MINUTE

When something is too good to be true - it usually is.

1. With such comparatively low salaries - will it be possible to attract qualified managers?  Not to mention the best?
2. What about all the existing managers/directors?  Will they have their salaries lowered?  The excess managers will be moved to an empty office with salary?  Or will they be fired?
3. With lower salaries - will we see even more corruption?  And an even faster exit to positions "earned" by promoting special interests?
4. One of the good things about criminals in jail, is that while in jail they are impeded from committing crime.  What about all "the boys" on the loose (no longer directors) in the future?  Will it be safe to go outside? (*)
5. Even greed can become too obvious. With the people starving, it will look bad that "the boys" do not earn a little less.   Hence this temporary salary reduction as an action of solidarity.

(Funny, how living in Portugal and observing politicians makes you a cynic.)

I once read a science fiction novel about an interesting society.   The only way to become a voting citizen was by spending five years working for society.  E.g. as a soldier.   The only way to become a public manager was by giving all your wealth away and denouncing all other positions.

I wish.  Being a public servant such as a manager or a judge should only be for the best of best, for people with the highest integrity.  For idealists and people of honor.  For people with a wish to serve.

Alas...


(*) My son did not understand this sentence.  It is supposed to be funny - and to expose a bit of truth:  "The boys" are generally speaking the scum of the earth.  Corrupt to the bone.  They have sold their souls.  A corrupt public employee will always cost the state money.  That money could have been used to treat sick children - even save lives.   "The boys" are more criminal than most criminals currently in jail.  I would rather be confronted by a street thug.  He might steal my wallet - but he won't harm my child.
When "the boys" no longer can find jobs in the public sector - where will they go to do what harm? - that's the worry.

Brain drain

I have lost my ability for speech, I am flabbergasted, I am so astounded that I have somebody else write this.  Dictation is by tears.

The government has made an announcement.  It comes from the "Secretário de Estado da Juventude e do Desporto", Alexandre Miguel Mestre. "A secretariado de estado" is one of many subministers (trick to have governments seem smaller than they are as the number of überministers can be small).  "Juventude and Desporto" is youth and sport.  Mr. Mestre belongs to the Deputy and Parliamentary Affairs Minister, Mr. Miguel Relvas.

What a Deputy and Parliamentary Affairs Minister does, nobody knew.  Now we know he is the boss of Mr. Mestre.

Mr. Mestre has announced that young people should leave their comfort zone to find a job.  I entirely agree, until Mr. Mestre then declares all of Portugal the comfort zone of youths.  Yes, you already got the geist of his communiqúe.

Mr. Mestre is asking young people to emigrate to find a job.  Pack the luggage. Leave the country. Get lost.  There is no future here.  Our investment in you is a write off.

He then continues "the country can not look at emigration only with negativistic (politician speak for pessimist) eyes  concerning brain drain"

Mr. Mestre - you should have told East Germany so many years ago...   In spite of them making the DDR a prison to try stop people running away, to this day the brain drain is still felt in the eastern part of Germany.

However, I can see your point and the advantages.   It will permit lower expenses, lower the number of infants, improve the unemployment statistics, decrease the amount and violence of demonstrations and it will permit people like you to stay in power.

When every person in Portugal with any initiative or IQ has left, then the rest can leave - as there is no reason to remain and the country will have no future.

The last one leaving can turn off the lights.

PS.  The subministry seems to be closed already.  The rats are smart and are always the first to leave the sinking ship.   When you try to access the website - it says:

maintenance - we will try to be brief

I beg you

Shooting yourself in the foot may be deadly.  Don't do it.

PM Passos Coelho, Hat Tip (Fernando Campos)

A priori this government sounds like it want to make the necessary changes.  In Brazil the PM yesterday stated:

"Our path we have to follow is a path of economic change, we must bet more on the companies, more on the opening on the economy to the exterior, more on entrepreneurship and the creativity of the Portuguese, free us from the weight of this debt - it will take time, but has to be done, to reduce the spending of the state and the public expenses"


DUH!

We need to solve the structural problems.  Indeed!   But when you look at what the government is doing it is astoundingly limited.  Let us study what is being done for the companies.  Here are the plans:

1. Workers in the private sector will work 2.5 hours more per week with no compensation
2. 4-5 yearly holidays will be abolished, and bridges will be eliminated.

Is that it?  No lower costs? No incentives?  No smaller public sector?  No lower labor costs?  No more efficiency?  No less bureaucracy?  No better education?  No better health? No lower social costs?  No economic help?  No way to get loans/finance?  No more liberal labour laws?  No more work force mobility?  

I could be generous and list a few initiatives that may be the beginning of structural change and perhaps a lower level of expenditure for the public sector:

1. Less PPPs, public private entity co-operations
2. Privatization of large public companies
3. Abolishing a large number of public entities
   But which, and is abolishment just joining them together into larger fewer ones?
   There are no plans to fire any public employees (as the immediate cost would be larger than the savings)
4. Cutting health costs
5. Cutting education costs
6. Making former free highways not so

No, the government has instead insisted on creating income on the short term to live up to the public sector maximum deficit as defined by the Troika.   Because the alternative is bankruptcy as Portugal would default.  But would this really be so bad?  Greece has technically defaulted now and will be forgiven 50% of its debt.  I checked a recent satellite image and Greece is still there.   

I am very afraid the cure proposed by the PSD government is as bad or worse than the decease - if possible

Consider some of the measures Portugal will have to live with:

• Higher income tax for well to do companies
• Higher income tax for well to do people
• Less deductions income tax for all individuals and especially for well to do individuals = more tax
• Higher property taxes
• Higher levels of value added tax.  The max level has been raised from 16% to 23% percent the last few years.  This government does not raise the max level, but it will raise some lower level taxed products from 6% and 13% to 23%.
  Here are some where it will hurt:  Restaurants, cafes, entertainment, electricity and gas
• All, except the poorest, retirees (except for people associated with the devil) will loose two monthly payments per year (the 13th and 14th) for at least the next two years
• All, except the worst paid, public employees will loose two monthly payments per year (the 13th and 14th) for at least the next two years
• Everybody, except the poorest, will loose 3,5% of their income this year in extra tax. (50% taxation of the 14th salary)
• No pensions will be actualized the next two years (at least)
• No public salaries will be actualized the next two years (at least)
• Cutting health costs
• Cutting education costs
• Demanding higher levels of bank reserves
• Raising costs of public transports

The year is not over yet and we will see more measures still.  2012 and 2013 will see more yet.

I could also list what the government is not doing.  But my keyboard would not be able to handle the massive input.

Anyway, the consequences read somewhat like an economics 101 recipe for disaster:

• When people have less money to spend - they spend less.  Currently half of everybody in Portugal earn less 500 euros per month.
• When products become more expensive (e.g. more VAT) people buy less
• When people spend less, the companies sell less
• When companies sell less, they earn less or go broke
• When companies sell less and go broke unemployment will worsen. .
• My schadenfreude is vibrant on the news of public employees loosing income.  A large group of them, the bureaucrats, deserve it.  But less income to a large group of the population means, all things even, also a retraction of the economy.  They will spend less
• A retraction of the economy leads, all things even, to less well to do companies and individuals
• You may have noticed that I added cutting health costs on both the list of the structural change measures and the list above.  Please do show me a single economy where lowering health levels have lead to more richness?  Sick people do not work very well and they are expensive in the long run.  They are even more expensive when they can not be fired
• You may have noticed that I added cutting education costs on both the list of the structural change measures and the list above.  Please do show me a single economy where lowering educations levels have lead to more richness?  Stupid people are not much good in countries which are dependent on high tech industries and they are expensive in the long run.  They are even more expensive when they cannot be fired.  Stupid people tend to be worse citizens than educated people.
• Retroactive (ex post facto) laws are not popular or even illegal for a reason.  You tend to distrust when words are broken and how can you have a society of law and justice when your current lawful, maybe even recommended, actions may be illegal tomorrow?   Cutting pensions are surely a necessity, but it is also a retroactive measure.  The current retirees have for the most part paid large shares (generally speaking 34+%) of the money reserved for them as salaries, subsidies, and social costs for their retirements mostly in the form of social security.  They were guaranteed a certain pension.  So much for that promise.
• The banks are currently hardly financing any companies.  They will after raising reserves have even less to lend.
• Added costs for companies, such as higher property taxes and added transportation costs, does not exactly help the bottom line.

The consumer confidence index is nearing the lowest ever.  The unemployment at the highest level in recent times.

IMHO the government measures are nearly all making it more difficult for the private sector.  It will diminish.  There will be less companies, less income, and less entrepreneurship.   The economy will retract.

In Greece by now 20% of all shops have closed.  I am sure soon at least 20% of all other companies will have closed as well.  And it will hurt much more next year and probably the coming years...   In Portugal the same will happen.   When it does, we are not talking about 13% unemployment but rather 20 something percent.  The Spanish unemployment is currently at 21,5%, youth unemployment over 40%.  I am afraid our neighbor with a seemingly more healthy economy is showing us where we are going.

The real tragedy here is that the government when proposing its measures had certain assumptions like:  13% unemployment and a retraction of the economy of 2,8% for 2012.  (I am not certain of the exact numbers and too lazy to look them up - but they are in that neighborhood).   Everybody outside the government just knows it will be worse!

I beg you.  Somebody give the government a calculator!

For the possible consequences could be devastating.  Worst scenarios consists of decades of crisis, 30% or more unemployed, education and health sectors in ruin and private enterprise destroyed.

In the above the focus is mostly on economic issues.  But this is not really where the focus ought only to be.  Economy, or money, is just a means, albeit important, to accomplish something.  A thriving economy is not a guarantee for a thriving population.  What is to guarantee life quality, satisfaction and happiness?  A recent study pins Portuguese as some of the most unhappy of the OECD.

A huge unemployment is surely not a way to improve happiness.

I beg you.  Somebody ask the government to get their priorities in order.