Hobson's Choice

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Portugal, S&G Pact, and Barroso

December 05, 2004

The Stability and Growth Pact requires Eurozone countries to limit budget deficits to no more than 3 percent of GDP; it was a demand of Germany's delegation to the Maastricht negotiations in '92. Member countries that exceed this ceiling for three consecutive years must face sanctions and ultimately pay fines of up to 0.5% of GDP (if Germany were required to pay the fine, that would be about US$11 billion [€8.4 billion]). As most Europeans probably know by now, Germany and France-the EU's two largest economies-in fact ran fiscal deficits in excess of the 3% of GDP (Economist; the SGP became effective in 1997-EUbusiness).

The purpose of the SGP was to ensure that European governments were dependable in adhering to their budgetary constraints, thereby keeping levels of sovereign debt manageable. This was of special importance to the German government because, with the implementation of the euro as a pan-European currency, the German taxpayer would be held to answer for sovereign debt incurred by countries like notoriously spendthrift Italy. So it is in fact ironic that Germany was so soon smitten under its draconian provisions. However, German and French negotiators swayed the Council of Ministers to suspend the pact's penalty provisions; more brazen still, the CoM agreed that the targets were excessively rigid in the case of two responsible nations like France and Germany.

The European Court of Justice (ECJ) and the European Comission fumed, even though then-President of the Commission, Romano Prodi, admitted the SGP was "stupid." But rules, even stupid ones, ought not to be trampled on merely because the rule-breaker is politically powerful. It does indeed seem so obvious I can only wonder; even former officials from France and Germany condemned this, a breach of nationalist solidarity that is extremely rare in Europe.

So far, no country has ever had to pay the fine; Portugal's governing Social Democrats got a warning when their internal deficit hit 4% of GDP, but they promptly recovered. The warning probaly had some impact on then-PM António Guterres's decision to resign; the elections brought in the Social Democrats and Popular Party, and with them, the far-right PM José Durão Barroso. Barroso's victory has been divisive for Portugal; I would venture to say that Guterrez, while definitely on the left, managed to reach out to segments that were passionately clerical, thereby mollifying much of the right. In contrast, Barroso took up the job of slashing the Portuguese budget, while demonstrations gripped major cities; resigning to take the top job in the EU as Commission President, he immediately drove the Commission into a ditch with the Buttiglione affair.

This left his Quaylesque successor, Pedro Santana Lopez, fellow member of the Social Democrats (usually described as "center-right"). Possibly because of the coalition with the Popular Party-which is simply to the right-Santana Lopes is usually perceived as even further to the right than Barroso, although concrete examples of this are hard to come by.

Barroso cut a deal with President Jorge Sampiao to leave the coalition intact after he left; this has sparked exasperation on the part of the left, which sees this as a sort of enabling act to perpetuate a wounded right (Wounded, because the PSD-PP Coalition ruling Portugal was thumped in recent elections for the European Parliament. This is assumed-with much reservation-to suggest that the same would occur if the elections were for Portugal's parliament rather than the one in Strasbourg. If there are any European political junkies out there, I would love it if you could tell me what the expression is for a ruling coalition who got thrashed in the latest MEP elections.

What makes this all so odd is who is doing what to whom:

Radio Netherlands: ...Criticism [of Santana Lopes] focuses on the 2005 draft budget, which eases the sweeping austerity measures adopted under former Prime Minister Barroso by slashing income taxes and raising public sector pay and pensions. There have been warnings, even from within ruling Social Democrat quarters, that the plans could cause Portugal to breach EU public deficit limits once again.

That's weird; Barroso's coalition was savaged for imposing those cuts.

Earlier this week, President Sampaio—a Socialist—began moves to dissolve parliament and call early elections after declaring he had lost confidence in Mr. Santana's government. This followed a series of political blunders and rows with the media, which had sent the government's disapproval ratings soaring to 55 percent.
The final nail in Mr. Santana's coffin were the difficulties he faces within his own party, says Dr Jose Magone, Senior Lecturer in European Politics at Hull University in Britain. "Stinging criticism has come particularly from key leaders such as Aníbal Cavaco Silva, a former prime minister and a kind of éminence grise in Portugal, who wrote an article last Saturday in the leading newspaper Espresso, saying that incompetent people—and he was referring to Mr. Santana Lopes—should be replaced by competent people.
[..]
The snap election, slated for February, raises the prospect of the opposition Socialists, who have a substantial lead over Mr. Santana's PSD in the latest opinion polls, taking power.

Incidentally, if so, then France and Germany's Iraq policy will pick up a new ally: Portugal.

UPDATE: Forgot to include this detail: Athens has not been forthcoming about what its debt actually was:

EurActiv: The infringement procedure launched against Greece could ultimately lead to the country being taken to the European Court of Justice if it fails to satisfy the Commission that there will be no repeat of the inaccuracies in statistics it provided from 1997 to 2003.
The inaccuracies emerged following a change in government earlier this year. In September, the new Greek government told the Commission that it had significantly revised the country's deficits from 2000 to 2003 compared with figures submitted in March.

And in the BBC:

The Commission found that Greece had hugely underreported its budget deficit between 1997 and 1999. Greece had admitted that it would not have qualified to join the euro in 2001 if the true state of its budget deficit had been known at the time.
[...]
The body found that Greece's deficit in 1997 was actually 6.6% of its GDP, not 4% as was reported at the time. Eurostat has also revised upwards Greece's deficit figures for 1998 and 1999. In both years, Greece's deficit was above the 3% cap which the EU imposes on states wanting to join the euro.

This must be said, that is so like PASOK.