The tale of two nations – democracy dies in Portugal and lives in Canada

The tale of two nations – two monetary systems – two continents – Canada and Portugal. It is reasonable to assume that when voters in so-called free democracies elect members to their parliaments who then freely coalesce across ‘party’ lines to form an absolute majority that they will be given the right to govern irrespective of the ideology they represent and the policies that they have put forward to the voters to win their approval. That seems to happen in Canada. It definitely doesn’t happen in Portugal. The Portuguese President dropped his so-called “bomba atómica” last week when he refused to endorse the coalition of parties that held the absolute majority of seats in the Assembly as a result of the recent national election. He indicated that he would not allow a government that would relax the fiscal austerity and consider exiting the Eurozone. His motivation was that financial markets had to remain appeased. It was an extraordinary intervention and will come back to haunt the nation given that the conservative austerity government will lose its authority as soon as it puts its platform to the new Parliament for endorsement (within the next 10 or so days). Then the nation is in chaos and the President will be compelled to accept the anti-austerity left coalition or something worse will happen. But, happily, in Canada, the election of the Liberal Party is a rejection of the obsession with fiscal surpluses – at least for now.

Last Friday, I briefly mentioned that the Portuguese voters had firmly cast a vote against austerity in their recent national elections (October 4, 2015) by electing a number of ‘left’ parliamentary members who managed to settle their long-standing enmities and antagonisms and agree to form an anti-austerity coalition given they held the absolute majority of seats in the parliament.

The incumbent centre-right/right wing government coalition Portugal Ahead (PàF), comprised of the PSD (Social Democrats) and the CDS-PP (People’s Party) lost 25 seats in the 230 seat Assembly of the Republic (a swing of 11.8 per cent) although they still secured the largest vote (38.6 per cent) giving them 44.4 per cent of the Assembly of the Republic seats.

The – Official Results of the Election – published by the Comissão Nacional de Eleições (Portuguese Electoral Commission) – show that the parties who won seats in the Assembly were (in order of popularity):

1. Portugal Ahead (PàF) comprised of Social Democratic Party (PSD) and CDS–People’s Party (CDS-PP) won 36.86 per cent of the vote giving it 102 seats (down 22 from 2011) – 44.35 per cent of the total seats – right-wing.

2. Socialist Party (PS) won 32.32 per cent of the vote – 86 seats (up 12 from 2011) – 37.4 per cent of total seats – left-wing.

3. Left Bloc (BE) – won 10.2 per cent of the vote – 19 seats (up 11 from 2011) – 8.3 per cent of total seats – left-wing.

4. Democratic Unity Coalition (CDU) comprising the Portuguese Communist Party (PCP) and the Ecologist Party “The Greens” (PEV) won 8.3 per cent of the vote – 17 seats (up 1 from 2011) – 7.4 per cent of total seats – left-wing.

5. Social Democratic Party (Madeira and Azores only) won 1.5 per cent of the vote – 5 seats (down 2 from 2011) – 2.2 per cent of total seats – centre-right.

6. People-Animals-Nature (PAN) won 1.4 per cent of the vote – 1 seat (up 0 from 2011) – 0.4 per cent of total seats – Centre-left.

Portugal’s electoral outcomes are heavily concentrated spatially with the conservative right-wing parties dominating the extreme north and north-east of the nation (with a few pockets along the central coast) and the South and Porto (in the North and the second-largest city) firmly to the left.

The results also show that the apathy of the public is increasing with a ‘record low’ voter turnout of around 55.8 per cent.

On October 19, 2015, after initially saying he was open to the negotiate with the incumbent right-wing parties to form a government, the Socialist Party boss (António Costa) announced that the party would not form a governing block a

The proposed centre-right/right/PS coalition had been the idea of the PàF leader and incumbent Prime Minister Pedro Passos Coelho, the austerity maven from hell.

The Portuguese business newspaper Diário Económico said in its article (October 19, 2015) – Costa recusa bloco central alargado – that the PS leader had rejected the proposal because it would not reflect the “imperative needs of the nation and the sovereign will of the Portuguese people” (“imperiosa necessidade do país e a soberana vontade dos portugueses”).

The PS leader also indicated that the incumbent right-wing government would lose a vote of no confidence if they went ahead and tried to form a government.

This was after he had stitched up support from the Left Bloc and the Communist Party (and the Greens) in a super left-wing coalition.

If this coalition had have succeeded then Brussels would have faced one very large headache given that all three members of the left block oppose further austerity and reject interference in their fiscal affairs from the Troika.

They believed that with more than 55 per cent of the Assembly seats they should have been allowed to determine the future of Portugal without the outside interference from the Troika.

The PS has mostly articulated concerns with reversing public service cuts and the privatisation of the power, water and transport systems that have ravaged Portugal under the right-wingers. They also propose increased spending on education and health care.

These policies alone are enough to have them firmly in the hairs of the Troika bazookas.

But the headache would have been much larger than just reversing some of the nonsensical austerity. The Left Bloc and the Democratic Unity Coalition favour a return to currency sovereignty and the restoration of its own central banking system.

That is, going free of the overall ridiculous Eurozone.

At a rally in September 2015, Communist Party leader Jerónimo de Sousa called the European Union a “process of European capitalist integration which is crushing rights and sovereignty on this continent … the European Union is a project of domination of peoples and countries by large multinationals and a directory of powers.” (Source)

He further said that:

They wave the Greek situation around, to make it their lifejacket. But what the events in Greece demonstrate is the imperious need for resistance and struggle against the blackmails, pressures and impositions of the Euro and European Union. What they demonstrate is … that there is no solution without renegotiating the debt, without liberation from the constraints of the Euro that condition the sovereign development of countries.

On July 21, 2015, the leader of the Left Bloc (Catarina Martins) told a TVI24 interviewer that “Portugal had to be read to leave the euro” (“Portugal tem de estar preparado para sair do euro”) because “If you have to choose between living in dignity or the euro … [then] …. then Portugal should choose dignity” (“Se for preciso escolher entre viver em dignidade ou com o euro … Portugal deve escolher a dignidade”) (Source)

Reflecting on the recent Greek tragedy, she was highly critical of German Finance Minister Wolfgang Schäuble saying that “Any government that does not want to obey Mr Schäuble has to be prepared for the ECB to close down its banks or for Mr. Schauble to kick it out of the euro” (“Qualquer governo que não queira obedecer ao senhor Schauble tem de estar preparado para o BCE não fechar a banca ou o senhor Schauble dar um pontapé para fora do euro”).

The result of all this is now known. On October 22, 2015, the President of Portugal who is a right-winger used his considerable powers to reject the call from the PS leader for the left coalition to form a government even though they held the majority of seats.

Instead he requested the incumbent right-wing government to form the new government even though the left coalition has indicated it will bring the government down on the floor of the parliament.

The online, Lisbon-based newspaper Observador published a detailed account of the speech made by the President Cavaco Silva on October 22, 2015 to justify his extraordinary decision – Críticas, dúvidas, subentendidos. 9 chaves para perceber o discurso do Presidente.

The President said that he had rejected the vote of the people because (paraphrasing from the Portuguese):

1. Portugal needs a governance solution that ensures political stability including honouring international obligations.

2. The left-wing parties programs are not compatible with the strategic objectives of Portugal.

3. The new government had to maintain the targets on public debt and the structural deficit and maintain a commitment to the euro.

4. Compliance with the commitments under the Euro Zone is decisive and absolutely crucial to the financing of the economy and, consequently, economic growth and job creation.

5. Exiting the Eurozone would be catastrophic.

6. The PS is proposing a coalition of extremists and in the 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces … or have parties that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Stability and Growth Pact, as well as the dismantling of the economic and monetary union and to advocate the exit of Portugal from the Eurozone and the dissolution of NATO of which Portugal is a founding member.

7. After having introduced a demanding financial assistance program, which involved heavy sacrifices for the Portuguese people, it is my duty, within my constitutional powers, to do everything to prevent wrong signals to be transmitted to financial institutions, investors and markets, which would undermine the confidence and credibility outside of the country.

We will see what happens in the next 10 days because the new government has to bring its program to the Parliament within that time and get formal approval on the floor.

The President did not say in his speech what would happen if the conservatives do not gain the confidence of the Parliament. But he is really duty bound to then hand over power to the left-coalition.

Stay tuned.

The words of the best-selling 2013 book – Porque Devemos Sair do Euro (“Why we should quit the Euro”) – Portuguese writer Professor João Ferreira do Amaral from the Insituto Superior de Economia e Gestão (ISEG) came back to me as I was writing this blog.

I considered his work in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale (published May 2015).

He described the adjustment programs imposed on Portugal by the Troika as absurd (see Chapter 5.1) because imposing austerity upon austerity would exacerbate the economic and social collapse, without solving the problem of funding.

He described the European Commission as Germany’s new foreman (Chapter 5.1). The synopsis provided by the publisher places the modern calamity alongside Portugal’s 60 years of colonial repression under Phillip II of Spain:

In 1581 Portugal surrendered to Spain. In 1992 it laid itself at the feet of a European Commission increasingly answering to Germany’s tune. There was no referendum, the voters were never consulted. The Portuguese elites, who hoped to benefit richly from European Structural Funds, cavalierly handed over our currency – and with it our monetary sovereignty. The rest is history. From 2008 onwards, the European Commission broke with tradition and became an organ at the service of a new power. The Portuguese economy succumbed, choked by the new Mark. The tragedy was widely foretold in advance. In the 1990s several voices had alerted us to the dangers of joining the single currency (Chapter 5.1).

And then we have Canada! I will write a separate blog on the prospects there but a few quick points to note.

In Canada, the peoples’ anti-austerity sentiment was similarly expressed in the recent election which was held on October 19, 2015.

According to the – Elections Canada – which is the “independent, non-partisan agency responsible for conducting federal elections and referendums”:

1. The Liberal Party won 54.4 per cent of the seats (184) up from 34 seats in 2011 – with 39.5 per cent of the popular vote.

2. Conservative Party won 29.3 per cent of the seats (99) down from 166 seats in 2011 – with 31.9 per cent of the vote.

3. NDP – New Democratic Party – won 13 per cent of the seats (44) down from 103 seats in 2011 – with 19.7 per cent of the vote.

4. Bloc Québécois – won 3 per cent of the seats (10) up from 4 seats in 2011 – with 4.7 per cent of the vote.

5. Green – won 0.3 per cent of the seats (1) as they did in 2011 – with 3.5 per cent of the vote.

So from a disastrous outcome in 2011, the Liberals now have an absolute majority in the 338 seat House of Commons. The swing from the Conservative Party to the Liberal Party was 14.2 per cent and the swing from the NDP to the Liberal Party was 15.74 per cent.

From being third placed in 2011 and not sufficiently successful to constitute the ‘official opposition’, the Liberal Party – an avowed anti-austerity party, is now in charge.

The peoples’ voice has spoken – just as it did in Portugal. The population wanted the harsh austerity that the Conservative Party had inflicted on the nation to end. It was pretty much as simple as that irrespective of all the controversies and scandals that had marked the last few years of Conservative rule.

The Liberal Party is hardly a left-wing party though – it is described by political scientists as having a ‘centre-left’ leaning.

You can access their electoral policy platform – HERE. Some of the Conservative policies they have gone along with are a disgrace – particularly the 2015 Anti-terrorism Act which can be used to target environmental and indigenous activists.

The legislation unnecessarily limits the freedom of Canadian citizens and a spiteful government could easily use it to stifle dissent that has nothing to do with ‘national security’ (whatever that is).

So there is a ‘New Labour’ tinge to the Canadian Liberals.

I last wrote about Canada in this blog – Canada – by hook or by crook there will fiscal deficits.

The previous Conservative Government went into overreach mode (as described in the introduction) when they announced in the 2015 ‘Budget’ that they would table “Balanced budget legislation … to enshrine in law the Harper Government’s responsible fiscal management policy that is creating jobs and putting more money back into the pockets of Canadians”.

The then Minister for Finance said in his – Presentation Speech – that:

This year, we are forecasting a $1.4 billion surplus, and growing surpluses thereafter … a balanced budget is the only way to ensure long-term prosperity for Canadians …

He criticised the previous Government’s response to the GFC:

Their path – the path of spending money we do not have, on bureaucratic programs we do not need – leads to the crushing structural deficits that plagued this country for years … they found themselves in an economic swamp of their own creation.

And by the time they figured out the disaster the country was facing, the only way out was brutal cuts to programs Canadians count on.

So Canada was facing an even harsher assault on its prosperity if the Conservatives had have been re-elected.

This was at a time when Canada, like Australia, is facing the end of the resources boom that has changed the economic outlook significantly. The larger fiscal surpluses that the Conservatives were forecasting would probably not have come to fruition given the slowdown.

But in the leadup to the election, the slowdown in growth didn’t seem to be influencing the wild promises that the politicians were making.

The Conservative Government called the fiscal shift “credible economic stewardship”.

The opposition (NDP) claimed that despite the recession, it will “balance the books right away” if elected. Of course, the NDP claim they will balance the books in a fairer way than Harper’s conservatives.

So the Conservatives really thought their main opposition was the ‘austerity-lite’ NDP rather than the Liberals and the opinion polls, right up to the last weeks, suggested that was the case.

The Liberal Party recognised that the cuts the Conservatives made to get the fiscal balance into surplus have exacerbated the declining external outlook and helped drive Canada into recession.

They differentiated themselves from the NDP by not promising to balance the fiscal outcome any time soon and clearly understood in their campaign statements that government spending on infrastructure and other services was necesseary to restore growth.

Their leader also seemed to understand that the fiscal outcome will take care of itself if growth is sustained.

The delusion that the Conservative Canadian government was caught up in was that the growth of the Canadian economy post GFC was driven not just by the resources boom but also by the unsustainable build up in household debt associated with the real estate boom.

The combination of demand drivers allowed the economy to keep growing even though the government was whiteanting spending by moving to surplus. The surplus would not have occurred if the household sector had have adopted a more prudent approach to credit.

The point now is that the fiscal drag they were planning to intensify would have led to recession as business investment and exports crash. The Government hoped that households would continue to drive growth and allow the Government to maintain the fiscal drag – that was delusional.

At this point in the cycle as private spending moderates and households face rising unemployment and static income growth the Government had to increase its deficit – whether through discretionary policy changes or through the collapse in tax revenue.

The Liberal Party understood that and have been elected to implement a discretionary shift to higher fiscal deficits.

It has chosen to take the sensible path and introduce new discretionary spending programs to allow a ‘good’ deficit to emerge where the public spending supports the moderation in private spending and unemployment does not rise.

That is the preferred path and neither the Conservatives or the NDP were mature enough and educated enough to take that action.

An article in Canadian Business (October 20, 2015) – Trudeau’s gamble on deficit spending was the Liberals’ turning point – carried the sub-title:

Breaking with Ottawa’s decades-long obsession with balanced budgets became a key point of differentiation.

Finally!

The article notes that currency “traders soon got over it” – ‘it’ being the election of a political party determined to increase the fiscal deficit through increased government spending.

The ‘knee-jerk response’ was to initially sell off the currency but that “only created a buying opportunity for anyone with a less jaundiced view of government’s role in the economy”.

I love that! The financial market traders are ultimately are not ideological just greedy.

The article said that the Canadian people saw through the Conservative rush to surplus – with tricks like fire sales of shares in motor car companies etc. What the voters realised as that “Canada’s economy had slowed to its weakest pace of growth outside a recession since 1992” and that further cuts to government spending would worsen that situation.

It also notes that the NDP’s “vigorous defense of balanced budgets and a promise to cut the taxes of small businesses left the NDP looking like Harper-lite”.

That is a lesson for all ‘Austerity-Lite’ parties – such as the Australian Labour Party and the British Labour Party.

I am not suggesting that the Canadian Liberal Party is imbued with a firm understanding of Modern Monetary Theory (MMT). Far from it.

They are talking about borrowing for infrastructure spending and that it is the right time to borrow because interest rates are low.

The two obvious retorts:

1. They can spend without borrowing and should.

2. The decision and justification to run larger (though small in their case) fiscal deficits should not be driven by the level of interest rates (high or low) but by the need to fill the spending (output) gap left by the deficiency of non-government spending.

The collapse of business investment spending and export revenue and the fact that Canadian households are holding unsustainably high levels of debt and won’t be increasing consumption spending any time soon is the reason the Canadian government has to increase its fiscal deficit now.

It wouldn’t matter what the yields on governemnt debt were – the urgency is to maintain spending growth to keep employment growth moving along.

But the election is being hailed as an anti-austerity outcome and that provides some room for further debate again.

Conclusion

The same Canadian Business author had written an article on July 23, 2015 – Why the federal government shouldn’t balance the budget – where he described the “obsession with balanced budgets” as “a relic of ’90s economics. It’s a dangerous delusion today”.

While that point is agreed – the balance the budget obsession was always a delusion.

We welcome the major shift in Canadian politics against austerity and a constitution that allows the peoples’ vote to have meaning.

In Portugal, the financial markets and the Troika rule – democracy is imperiled.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

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    13 Responses to The tale of two nations – democracy dies in Portugal and lives in Canada

    1. Hepion says:

      Meanwhile Brazil is in the grips of full blown out austerity mania.

      “Finance minister Levy resolved to target one particular statistic: the primary budget surplus – the budget surplus excluding debt interest payments – which he insists must be equivalent to 1.2% of the country’s economic output. He slashed government spending and raised taxes, in an attempt to achieve the 1.2%. Since January, unemployment has risen to 8.3%, from 6.4%, economy will contract 2% this year and 0.24% in 2016. Now the government has abandoned its budget surplus target of 1.2% replacing it with a more modest one of 0.15%. ”

      http://www.bbc.com/news/business-34069222

      Result is plummeting popularity for the president and opposition even from former president da silva:

      “Mr Lula da Silva, still the pre-eminent figure in the ruling leftist Workers’ party (PT), criticised the economic policies of Joaquim Levy, Ms Rousseff’s University of Chicago-trained finance minister.”

      http://www.ft.com/intl/cms/s/0/5f699b26-7983-11e5-a95a-27d368e1ddf7.html#axzz3piYvLRro

      Good news is these sort of experiments get lot of media attention. Can we learn from failures?

    2. The Dork of Cork says:

      You hold a very naive view of life in Canada.

      The crown is using every trick in the book to stall Comer vs Boc.
      You cannot have a functional democracy in a country with a Cb.
      Without a national credit office democracy becomes a joke.

    3. Robert says:

      We’re just relieved that Stephen Harper is gone. Part of the election results are due to personal animosity towards the former PM.

    4. Neil Wilson says:

      I always find it amusing that progressives love the idea of Proportional Representation and then are surprised when after the election everything they voted for goes out of the window.

      The problem with coalitions formed after the election is that the politicians decide what stays and what goes. If they are required to form their coalitions before the election at least you know roughly what you’re going to end up with.

      Another example of more choice leading to a poorer outcome. And Portugal is a classic case in point.

    5. Ignacio says:

      Neil wait for a repeat of the same story in (less than) two months in Spain…

      Sadly.

    6. J Christensen says:

      There is a sense of confidence that things are looking better since the election. The Liberal majority really was a surprise outcome as the votes were being counted. NDP and Liberal scrutinizer’s were closely watching the count until it soon became clear that the fabled NDP “orange wave” was not going to happen.

      There was little doubt the conservatives were headed for at least a downgrade to a minority government position just based on the public visibility of Stephen Harpers abuses of power and the fact that despite 10 years of conservative governance, much of our economic prosperity depended on the price of a single commodity, which dropped.

      So, I would attribute the choice of Liberals to strategic voting more than the promise of fiscal deficit’s. It was a shift from anything but Harper, to let’s play it safe because we know we have always voted either Liberal or Conservative.

      A few more astute people did understand that deficit’s are needed but they are still in the minority. It will take years to come before a significant portion of our population grasp that our macroeconomics policy outcomes will have better results if an MMT approach is taken.

      If Liberals are serious about reversing previously neo liberal ways they will understand that now is the time to start educating the public mind to the need to learn the new more relevant economic language. If they fail to use the opportunity this majority provides, the conservatives or possibly even the NDP will chip away at the current public confidence using the well rehearsed neoliberal rhetoric until nothing is left to build on once again.

      Still, it’s a nice fall morning, Harper is gone, Canada Post (a crown corporation under pressure from spending cuts) has announced that they will be holding off on plans to replace “to the door delivery” with community super mailboxes, and Trudeau will be meeting with Kathleen Wynne the Ontario premier today ,hopefully to discuss health care transfers and ways to end the planned debt driven privatization of the electrical infrastructure.

      P.S @ Dork of Cork: The COMER group (www.comer.org) seems more confident that they will be getting their trial heard after a recent hearing of a motion to strike by the government. It will be telling how the new government treats this development.

    7. CharlesJ says:

      Meanwhile…
      BBC headline reads:

      Bernanke: Governments ‘too focused on budget cuts’

      http://www.bbc.co.uk/news/business-34641850

      Day-by-day things seem to be slowly moving in the right direction, albeit in fits and starts.

    8. The Dork of Cork says:

      @J
      What’s most telling is the lack of media coverage.
      This illustrates the scale of he deception.

      From “Rebel” Austrian blogs and internet sites there is not a word.
      Just scarcity scarcity and yet more scarcity.
      People are simply not aware that the money monopoly steals so much leaving them with a tiny net national product.
      The Keynesian deception of Bretton woods (using GDP metrics to measure growth) has been blown wide open.
      Its the greatest story never told.

    9. Sickening but I am afraid that I saw it coming. Democracy is dead now in all the European periphery. Those countries are now, essentially, a protectorate of Germany.

    10. J Christensen says:

      @ Dork of Cork: There was some coverage on the CBC. Amanda Lang discussed it with Rocco Galati, the constitutional lawyer who represents the group, for about 15min several weeks ago, but that is about all the coverage I have ever seen on any mainstream media, and that aired around 7pm on a Friday.
      I suspect even that limited coverage was due to significant prodding by the few Canadians following the case. It is a curious thing. If it reaches the supreme court there will be no way to contain the story and everyone will wonder why they hadn’t heard about before.

    11. /L says:

      Probably hope in a ”socialist” gov. was saved. Portugal is in the EU/Eurozone neoliberal economic straight jacket, they would have failed to conduct expansive economic policies for domestic demand and jobs. Just as Holland, failed and Syriza failed, they had been brought down on their knees and eat crow.

      They (the postmodern globalist lefties) here in EUrope seems to simply don’t get that the neoliberal economic scheme of Lisbon agreement (EU-constitution) and not least the Euro-straight-jacket have to abandoned. If there even should be a slim chance for a progressive leftist economic agenda.

    12. Jorge Amar says:

      /L I totally agree with you , inside eurozone there is no room for progressive politics so we have to go out , however there is no party supporting the Spexit yet ( Podemos or IU don´t dare to propose that) .
      Here in Spain certainly we´ll see the recessionist ( PP-PsoE- Ciudadanos) winning general election in december so we´ll suffer more cuts and unemployment next year.

    13. Noni Mausa says:

      I was also startled when I heard the news of Portugal’s president refusing to recognize a legitimate left wing coalition. When, in the absence of war or national emergency, a leader won’t stop leading, it does indeed strike at the roots of the democratic system. I will watch their news over the next few days. It is interesting to remember that Canada’s prime minister Harper did something similar — as similar as he could given the differences in our system and Portugal’s. And damn if he didn’t get away with it.

      https://en.m.wikipedia.org/wiki/2008–09_Canadian_parliamentary_dispute

      Back in winter of 2008, Harper did not yet have a majority. But he was already inspiring dislike and alarm with his neocon policies. He was informed of the intention of the Liberal and NDP parties to come to parliament in a few days to hold a vote of no confidence on his proposed budget, form a coalition and request of the Governor General that they be allowed to form a replacement to Harper’s government.

      Harper promptly prorogued parliament, that is, closed the session unilaterally, and then proceeded to smear the very idea of a coalition as some sort of illegal and unCanadian coup. This was just before the Christmas season. He kept parliament closed for nine weeks, during which time he smeared coalitions in general, while sweet-talking the disorganized Liberal party into supporting a slightly altered budget.

      So we and Portugal are fighting similar battles. It’s just the timing that’s different.

      Noni

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