Hundreds of thousands of Portuguese took to the streets of Lisbon to protest against economic austerity on March 2, and the only surprise is that they didn’t do so earlier. Portugal is the euro area’s clearest example of how austerity is killing the patient, with the ill effects of counterproductive fiscal retrenchment unfolding before our eyes.
We rarely hear about Portugal’s economic troubles. With a population of 11 million, the country is much smaller than Spain or Italy, and it has less public debt than Greece and less private debt than Ireland. Plus, the government has generally done as it’s told by its international creditors, and the people have — until now at least — quietly accepted their medicine.
Unlike Greece, though, Portugal’s continued decline into recession can’t be attributed to speculation about its potential exit from the euro area. (Ever heard of a Porxit?) Nor can the country’s lack of growth be blamed on a failure to implement the program that creditors set out to return it to sustainable growth. Portugal’s trajectory deeper into recession is unadulterated evidence that the euro area’s insistence on austerity isn’t leading to a recovery.