Three years ago, Portugal had a fragile banking sector, and a high public debt, trying to overturn austerity. Now, it's Italy who is in "a collision course with the EU over budget deficit targets".
The Financial Times compared the economic situation in Italy with how the Portuguese economy was performing three years ago, saying Italy is a “eurozone government set on a collision course with the EU over budget deficit targets”.
At the moment, the financial outlooks of both countries are graspingly different: Portugal delivered its budget papers this week, with the government promising to reach a 0.2% deficit in 2019, while Italy’s budget, on the other hand, has proposed a deficit of 2.4% of GDP, which stands way above EU’s target of 0.8%.
The 0.2% target is the lowest Portugal has achieved in more than four decades.
Italy’s Prime Minister, Salvini, is defying the EU, in what the FT has called “a notable reversal of roles since 2016 when the Portuguese minister himself came under strong EU pressure over his budget plans”.
As noted by the British financial newspaper, Portugal suffered the fallouts of a great recession after the eurozone debt crisis, having “sought a €78bn bailout from the EU and IMF in 2011”. But with Centeno leading the finances of the country, it seems like Portugal has been progressively converging with EU standards, expecting a 2.3% GDP growth for this year, slightly below the 2.8% GDP growth rate registered last year.
Italy is defying Brussels, clearly disagreeing measures from the European Union as they follow-up on their promises to the electorate, while on the other hand, as the analyst António Barroso told FT’s reporters, “Portugal has maintained an anti-austerity rhetoric to ensure the support of its hard-left partners” while making “an effort to deliver on fiscal consolidation and not lose credibility with investors”.
One of the highlights from the Portuguese economy’s recovery is the GDP growth, which has shown last month to be bigger than before the financial crisis, leaving “Italy and Greece as the only EU and OECD countries that still produce less than they did before years of financial turmoil knocked the eurozone economy off track”.
The Financial Times article also noted that economists are explaining the Portuguese recovery as a result of an increase in competitiveness, with special attention given to the labour market and its union labour costs which have been falling more than in other countries hit by the crisis — meaning that, as Valentina Romei wrote for FT, “its output became cheaper and its exports more competitive”.
Additionally, the booming in tourism and the automotive industry, as well as the witnessed increase in consumption, have also been pointed out by economists as reasons behind the Portuguese economy’s recovery.
Increases in unemployment subsidies, and retirement age reduction in Italy
The Financial Times also noted another difference between both countries, as the Italian government is planning to follow up on their anti-austerity rhetoric by increasing the social benefits given to the unemployed to €780 a month, accompanied by a reduction in the retirement age from 68 to 62 for certain types of jobs.
On the other hand, Portugal, with its ten-year borrowing costs now falling below 2 per cent, can afford to have at least €50m available for their government employees’ salary increase, to reduce energy bills, taxes and public transports.
The Italian government was elected based upon their promise to stand up to the European Union by increasing significantly their public debt, which could only be a clear defiance to Brussels.