In Portugal, the centre-left Socialist minority government, with the support of the Communist party and Left Bloc, has succeeded in bringing the country’s budget deficit to its lowest level in more than two decades. When the government came to power in 2015, some northern eurozone governments and eurozone experts warned that its announced anti-austerity policies would lead to renewed financial problems.
After all, Portugal needed a €78bn bailout in 2011, after recording a deficit of more than 11% the previous year. Instead, Portugal returned to investment grade debt status in September 2017. The government raised (minimum) wages, cut taxes, is restoring state sector salaries; choosing for drastic cuts in public investment instead. The economy is (modestly) growing and unemployment has dropped considerably. Portugal demonstrated convincingly that there is an alternative to following a strict austerity agenda.
In the meantime, Greece is struggling to stand on its own feet again after eight years. Although the worst seems to be over, the country’s finances still need serious repairing after an unprecedented economic meltdown. Even though the economy is showing signs of a slight recovery with modest growth, low inflation and a modest drop in unemployment, many issues are still pending and exiting the rescue programme in August might be premature.
Also, in the meantime, French president Emanuel Macron’s first attempt to present his ideas for eurozone reform, which include an own budget for the eurozone and an EU finance minister, on the EU March summit failed, mainly because of a lack of interest on the side of the new German government.
All hope is now set on the June summit, but so far, the German response has been lukewarm; the Netherlands and eight northern states have already voiced fierce opposition against Macron’s plans to transfer further powers to the EU. Will the north side against the south (again), widening the already existing north south divide in the eurozone even more? Has the south found a new ally in Macron whose statement that ‘responsibility and solidarity of the eurozone have to be redefined’, has outlined his reform principles – and will the French president succeed in persuading the Germans?