Portugal Has Emerged as Europe’s Booming Anti-Germany
By Paul Hockenos, Foreign Policy, December 18, 2017
Germany’s resolute Chancellor Angela Merkel is not usually one to admit she’s been wrong. But this autumn, when it comes to her faith in austerity economics in Europe, Merkel, together with her then-Finance Minister Wolfgang Schaüble, did as much--in deed, if not in word.
The Germans threw their hefty weight behind the leftist economist Mário Centeno, Portugal’s finance minister, for the coveted post of head of the Eurogroup, the common currency’s influential 19-member directorate. In January, Centeno, a Harvard-educated Portuguese Socialist Party freethinker, will leave Lisbon’s left-wing government to succeed the incumbent president, Jeroen Dijsselbloem.
Centeno constitutes a shift in course. Until now, he has represented a Southern European country, Portugal, that received a 78 billion euro ($92 billion) bailout from its fellow European Union member states amid the euro crisis. But even more remarkable, Centeno was part of a leftist government with the backing of a communist party, which subsequently bucked the marching orders of its northern creditors and the troika composed of the European Central Bank, European Commission, and International Monetary Fund.
Whether Centeno’s ascension, with Berlin’s assistance, represents a shift in German economic thinking remains to be seen. Less than two years ago, Schaüble, the eurozone’s fiercest fiscal hawk, warned Portugal that its refusal to follow the rules would sink its economy and force it to seek another international bailout. But, since then, Lisbon’s cautiously renegade deviations have won plaudits even from budget disciplinarians--including Schaüble himself.
Portugal has proven it’s possible for a struggling country to defy German-imposed austerity in the EU and still succeed. That’s not to suggest that, just because Centeno has served a leftist Portuguese government, he will pursue radical policy ambitions in Brussels. But, as president of the Eurogroup, he will execute duties in a body that grew immensely in significance over the course of the financial crises and will be paramount in guiding the reform processes that still lie ahead.
Lisbon is the first Southern European government to climb out of the swamp of indebtedness and stagnation. Its economy is undergoing its fastest expansion in over a decade, and more growth is expected next year, which will shrink the country’s budget deficit to 1 percent of GDP--the slightest in 40 years. Unemployment this year fell to 9.2 percent, down from 17.5 percent in 2013, and exports are picking up. (Nevertheless, Portugal’s national debt is still 128 percent of its current GDP, a sign that it is not entirely out of the woods yet.)
“Mr. Centeno’s appointment is representative of a policy change in the workings of the eurozone,” said Gustav Horn, an economist at the Hans-Böckler-Stiftung, a German think tank. “It’s an admission that the hard-line austerity prescriptions and fiscal contraction haven’t worked, which we can see in Greece. Cutting spending and taxes in times of crisis only make things worse. Portugal’s approach was different: first get the economy going, then get the budget right. Merkel has now obviously recognized this.”
To be sure, no one in Germany is apologizing about the straightjackets they insisted Europe’s debtors don. But the important thing isn’t whether Merkel goes on the public record crying “mea culpa.” Taking stock of Portugal’s achievement and easing up on the debtor countries--foremost Greece--would be compensation enough.
