Portugal’s middle classes face harsh new realities

Eighteen months after the so-called troika of the IMF, the European Central Bank and the European Commission took over the reins of the Portuguese economy, imposing swingeing austerity measures in the process, the country's middle classes have endured a steep decline in their living standards.

 On Saturday, under the slogan "To the devil with the troika - we want our lives back," an estimated 150,000 people, among them many families with children, took to the streets of the two main cities, Lisbon and Porto, with marches staged in a further 20 towns. They were demanding an end to policies that threaten the modest increases in living standards of the country's fledgling middle classes that are further widening inequality in a country where the average take-home wage is around 800 euros.

The protests, which were not led by political parties or labor unions but were organized through social media networks and word of mouth, called for the resignation of the center-right coalition government of Social Democrat Prime Minister Pedro Passos Coelho.

Since last year's bailout, the official unemployment rate has risen to 15 percent amid tax hikes and spending cuts that have hit education and health services.

"To the devil with the troika - we want our lives back" was the slogan

Portugal's reform course has been billed as a success by the troika, which last week agreed to relax Portugal's deficit targets for 2012 and 2013.

Sensing the growing anger among its middle-class constituency, the main opposition Socialists are now threatening to end cross-party support for the bailout by voting against Passos Coelho's 2013 draft budget. They have demanded that his government drop its plan to raise the Social Security levy on all workers from 11 to 18 percent.

Employees will be required to pay 18 percent of their salaries to Social Security, up from 11 percent, allowing companies to cut their contributions from 23.75 percent to 18 percent.

"We will reduce substantially the costs of labor, providing incentives to investment and job creation," the Portuguese leader said.

Public sector workers will lose one paycheck out of the 14 they receive each year. Passos Coelho had scrapped an attempt to cut two months' salary after a court ruled in July that it discriminated against public employees. The prime minister has said he will hike taxes on the profits of big corporations and wealthy individuals, but has yet to give any details on how this will be achieved.

PM: "We will reduce the costs of labor, providing incentives to investment"

On Saturday, many protestors said they hoped the government would rethink its draft budget, while two surveys showed the Socialists overtaking Passos Coelho's liberal PSD for the first time since Portugal's June 2011 election.

Passos Coelho has already increased income and sales tax, as well as introducing copayment for health services, and raising bus and train fares. Earlier this month, the government implemented a de facto wage cut across all sector, and followed this up by announcing further cuts to social spending.

In exchange, the troika, which bailed out the economy in April 2011 to the tune of 78 billion euros, and whose representatives visit Lisbon every three months to look over the government's accounts, eased the terms by which the country must reduce its public deficit to five percent of GDP by the end of the year, up from the previous target of 4.5 percent.

The final goal of three percent, originally set for 2013, has now been pushed back to 2014.

People no longer believe in the policies: society itself is dying on its feet"

The news, although it represents a respite of a kind for the administration, has brought home to the Portuguese that they face at least another two years of austerity and further cuts in living standards. Furthermore it has illustrated that despite having followed the troika's strictures to the letter, Portugal is no nearer to recovery.

"Up until last week, when the prime minister announced the news, the Portuguese economy was dying on its feet, but people still believed in what the government was doing. But now a line has been crossed, and people no longer believe in the policies: now society itself is dying on its feet," says Pedro Reis, an economist who advises the Left Bloc coalition.

Manuel Carvalho, the former head of the CGTP labor union, expressed the sense of frustration in a television debate last week, asking: "What have we gained by being such an obedient pupil? We are as poor as the Greeks. Does anybody really think that if Greece leaves the euro, they are going to leave us alone just for having behaved ourselves?"

The government's argument is that there is no choice but to take the troika's medicine. "We have met the troika's expectations. And we now enjoy credibility that we didn't have a year ago, when we were bankrupt. And if we do not continue to meet their expectations, then in September 2013 we will not be able to go to the international money markets to finance ourselves with those guarantees. This is the only way to avoid bailouts every three or four months," Passos Coelho said last week on television.

What have we gained by being so obedient? We are as poor as the Greeks"

The current recession will see Portugal's economy shrink by three percent this year, while unemployment continues to rise. Tax revenue has not met forecasts, largely due to the sharp fall in consumer spending. At the same time, unemployment payments have soared.

A walk through the center of Lisbon reveals the scale of the problem, where growing numbers of shops, bars, restaurants are closing.

Raúl Sosa, a 50-year-old salesman at the Hello shoe shop in the capital's central Praça do Rossio square, says that sales have fallen by 80 percent over the last few months. "As soon as the summer ends, and with it the last Brazilian tourists return home, this shop is finished," he says. He has been working at the shop since 1970, and earns 800 euros. He says that he will be facing another pay cut next year, assuming he is still in work. "I no longer use the car, and I can't afford to take my family on vacation," he says.

One of the marchers on Saturday, a 38-year-old woman with three children who did not want to be named, said that she lost her job last year, and that her husband's salary has been cut by 15 percent. "I am bringing my children up to understand austerity: there is no way that they will enjoy the lifestyle that we have had up until now. They will have to get used to having no money."