Portugal - the future

Portugal is not well-prepared for the future. There is no collective will or ability to tackle long-term social and economic problems. EU membership has benefited Portugal greatly and postponed necessary structural adjustments. The whole country is living beyond it's means and in denial about it. The markets will ultimately force hard choices on the Portuguese people. The main target will be unsustainable Portuguese national debt.

Three things dominate current government spending in Portugal:

  1. Repaying national debt: Here the country simply has no choice. Economic mismanagement in the years 2000-2015 has left the country with a debt burden it must reduce dramatically.
  2. Income payments to state employees and pensioners: Portuguese democracy can not really tackle a bloated state sector and excessive bureaucracy. No government could force the required changes through now, because the country would be paralysed by strikes and civil chaos.
  3. Capital investment: Partly in physical capital e.g. road, rail and air transport. But most importantly in human capital through more and better education. Without that long-term investment, Portugal can simply not compete with other countries - in Europe to a degree but mostly in Asia - that are racing up the value chain to the high-skilled high-value jobs that drive real economic growth. It is in this broad area of capital investment that Portugal is failing badly. The government spends for the short-term not the long-term. Because that is what the Portuguese people vote for.

You can say much the same thing for all Southern European nations. As long as Germany keeps paying for everything and EU bureaucracy keeps turning a blind eye to deep structural problems, those countries have no incentive to reform. The bailouts of Greece have revealed how deeply flawed that thinking is. Portugal is right behind Greece in terms of a relatively small EU country that has wasted a once-in-a-lifetime opportunity to properly invest EU support funds. Future generations of the most capable young Portuguese people will not thank the older generations - they will just leave their country with regret. Portugal simply will not compete with the rise of Asia. No amount of EU largesse will protect Portugal in the long term. A small country with an astonishing history will slide steadily backwards.