Mário Draghi of the European Central Bank dropped into Lisbon today as the guest of Portugal’s President, Marcelo Rebelo de Sousa.
Draghi had been invited to speak at the Council of State which he did at length, saying he welcomed the reforms that have been made in Portugal, praised Passos Coelho for at least trying, singled out moves on 'flexibility of labour,' and alluded to the long term problem that could be caused by the exeat taken by hundreds of thousands of young Portuguese who had left the country to find work elsewhere.
Draghi spotted also that Portugal unemployment was high, where "a third of the (remaining) young workforce is jobless" and helpfully suggested that it is necessary to take urgent measures to "avoid creating a lost generation," while not daring to suggest what these might include. He also called for wage decreases, not helpful or polite for a man on €385,000 a year plus benefits.
As for Draghi’s bank, the ECB's measures are contributing to a recovery of sustainable economic growth, but need to be accompanied by "concerted efforts in terms of economic and fiscal policies." said Draghi, hailing Portugal's Plan B, referred to as "the preparation of additional measures which can be implemented if necessary in the future."
Plan B is that there is no Plan B. The Prime Minister Antonio Costa is pinning his economic hopes for Portugal on Plan A and his 'Programme of Stability and National Programme of Reforms' soon to be delivered to Brussels - which is not Plan B.
In Draghi’s view, the Portuguese economy is growing at the same pace as the eurozone, but the signs of recovery must not lead Portugal to believe that it can "rest."
Before this electrifying 180 minute speech there had been an equally dull lunch hosted by Rebelo de Sousa with guests including financial luminaries including the Governor of the Bank of Portugal in his role of 'dead man walking.'
Draghi is well aware that Portugal is hanging by a ratings agency thread and with one more downgrade, the country could be outside the bounds of the ECB’s quantitative easing programme which has been keeping borrowings at record levels.
The IMF’s Christine Lagarde yesterday warned that Portugal’s debt is higher than when all of this started, and unemployment remains the same despite up to 300,000 leaving the country, so Draghi’s presence in Lisbon today should not be viewed as a good will mission.
As for his unwelcome comments on dropping salaries and wages in Portugal for the greater good this misses the point entirely for a country on one of the lowest average earnings rates in Europe.
Unemployment in Portugal could be reduced dramatically if sane employment policies were put in place to encourage employees legally to take on staff. As it stands the coccoon of red tape and costs involved in a full time appointment means untaxed, cash-in-hand labour thrives and the social security budget is being used by those who also are working.