EU initiatives seen as potentially a positive way to deal with financial crisis

Institute for Strategic and International Studies
The year 2009 is certainly a year of great uncertainties regarding the future of the EU after the Irish ‘No’, particularly when this will be coupled with the unknown impact of the current financial and economic crisis, that seems to many more structural than simply a cyclical recession. But it may also be a year of opportunities. It will certainly be a year of great expectations of change in transatlantic relations and even in global politics with the arrival of President Obama at the White House.[1] The combination of these factors seems to point to 2009 as a year of both great opportunities and great challenges in terms of the future of the EU and of global governance.
The financial crisis may have demonstrated once more that the reality of globalisation in the shape of increased economic and social interdependence has its limitations in terms of governance, namely in providing effective regulations for globalised financial markets. The expectations regarding the EU in this context are very high in Portugal – European initiatives are largely seen as the only way to come up with effective answers to such an international and multidimensional crisis. Even if some will then use this starting point to criticise the EU difficulties and hesitations in responding to the crisis, and question whether more effective different policies could not be pursue. Others still see in these difficulties primarily evidence of the need to reform the EU, either to strengthen it, or to change the mandate of the European Central Bank so as to make sure that due account is given to the need to balance growth and employment with price stability.[2]
Still, economic analysts tend to emphasise the harsh lessons of crisis for smaller countries outside of Euroland and of the EU, most notably Iceland. Icelandic difficulties are generally seen as evidence of what might have happened to a country like Portugal – even more so because it would not have been shielded for so long by prejudices regarding Northern Europe’s fiscal responsibility and financial prudence, twice denied in the last few years by the banking crisis in Sweden and now in Iceland. In fact, criticism of the international rating firms was widespread, most notably pointing to the preconceptions that led to Iceland being awarded the highest possible ratings until the eve of its financial meltdown. Moreover, the belated urge of Iceland to join the EU and the Euro was seen as evidence that national sovereignty may not be as effective and as attractive now as it once were. The fact that Slovakia became the sixteenth state to join the Euro was generally seen as further proof of the attractiveness of the European currency in times of crisis. The fall of the British Pound has often been presented as further evidence of this. While at the same time causing some concern regarding the increased competitiveness of British exports vis-à-vis those of countries in Euroland, posing a renewed challenge to the principle of fair competition at the heart of the European internal market. The topic of the relative shield provided by the Euro and the wish of others to join has, in sum, been a relatively frequent theme in the Portuguese press.[3]
One important economic commentator called attention to the tenth anniversary of the Euro, labelling it the most ambitious, complex and successful monetary experience in history. Still, even he called attention to some problems for the future, mainly derived from fiscal irresponsibility resulting in growing breaches of the stability pact as well as the enduring rigidness of markets, particularly the labour markets.[4] Traditionally more eurosceptic commentators have emphasised arguments that Europe was perhaps once protective of the Portuguese economy – but in a negative way, because it shielded companies in need of reform – but now is no longer able, because of globalisation and the World Trade Organization’s rules, to perform that role, making the Portuguese economic future even more gloomy.[5]
The role of the Portuguese President of the European Commission, José Manuel Barroso, in the development of the stimulus package against opposition from some countries, namely the traditionally Europhile but fiscally conservative German government, also deserved some attention and speculation as to its impact in his ability to be reappointed to that role later this year. The EU stimulus package was largely welcomed as an important sign that the EU would support and complement the effort being made by national governments to invest more, even if its size had been reduced as a result of pressure from a number of countries, notably Germany.[6] Some commentators, particularly from the ‘far left’, have seen it as insufficient, advocating a much stronger presence of the state in the economy. While others worried about where the money would come from, and how effectively it would be spent by the states, with or without a clear strategy that would see spending in key sectors – like energy efficiency, and technological development, and not simply in building infrastructure.[7]
The more radical critique was evident in the Left Bloc appeal to a nationalisation of economically important sectors. This, in turn, caused the reaction of some analysts pointing to difficulties in setting boundaries to a nationalisation following that rationale – what would be the criteria for nationalising companies? Above all, the disastrous consequences of a kind of blind nationalisation of large sectors of the economy in 1975 was used to illustrate the point that this radical leftist strategy had a very negative impact in Portuguese economic performance in the past without any visible economic benefits for the country. Still, the fact that these proposals again emerged in the political debate – even if the possibility of such a strategy being victorious in the next elections is seen as very remote to say the least in all the polls so far – does show the radicalisation of debate on these matters as a consequence of the crisis. The government tried to show that it was indeed investing more with a vision, namely by announcing important fiscal benefits and direct subsidising of investment in solar power as well as in the improvement of energy efficiency in public buildings. [8]
There is the impression that hard times are ahead. However, some point to the fact that Portugal has the (unfortunate) advantage of being already used to this due to its relatively slow rate of economic growth in the past. The President of Republic, Aníbal Cavaco Silva, in his New Year address, labelled the past ten years as the “sad decade in Portuguese history” because there was almost no effective convergence with the rest of Europe in economic terms. Others talked of the ‘lost decade’, and perhaps strangely in a market economy, attributed most of the blame for the relative lack of economic growth, and modernisation of the economy, to failed government policies.[9] In terms of the longer term impact of the more recent economic changes, there is not a great deal of discussion. But it is clear that while some predict a relatively early recovery within one or two years, and see this as an opportunity to modernise companies and make them more competitive without fundamentally altering the existing economic and international system; others fear (or wish for) a longer and more structural crisis of the market economy resulting in a much stronger role for states. Internationally, this would result also in a fundamental change in the balance of power, with stronger states emerging among resource rich countries and playing a much greater role in global politics.

[1] See e.g. SpiegelOnline International: The World President. Great Expectations for Project Obama, available at: (last access: 21 November 2008).

[2] Luís Rego: Europa hesita na resposta à crise internacional, Diário Económico, 23 September 2008.

[3] Sérgio Aníbal: Ao fim de dez anos, o euro é mais desejado do que nunca, Público, 2 January 2009.

[4] João César das Neves: O Nascimento do Euro, Diário de Notícias, 2 February 2009.

[5] António Barreto: A Europa não é o que era, Público, 1 June 2008.

[6] Isabel Arriaga e Cunha: Plano Barroso contra a recessão já só conta com 195 mil milhões, available at: (last access: 2 December 2008).

[7] Portuguese government: Protocolo para apoiar instalação de painéis solares em edifícios habitacionais, press release, available at: (last access: 30 January 2008).

[8] Ana Taborda/Maria H. Espada: Apresento-vos o meu amigo Trotsky, Visão, 12 February 2009.

[9] Helena Garrido: Décadas perdidas, Jornal de Negócios, 14 January 2009.