Portugal-Lithuania: two sides of the same crisis

In Lisbon, shock therapy has failed to bring down the government. In Vilnius, it has made for a fast-tracked entry into Europe. What lessons can we learn from these criss-crossing paths?

Published on 11 July 2013 at 13:03

Separated by two time zones and 3,300 kilometres, Portugal and Lithuania seem to have a lot marking their differences. A flight between capitals stretches clear across Europe.

Nonetheless, in the torpor of summer, both countries are reminding their Europeans neighbours that they exist, each in its own way. Led by its energetic president, karate black belt Dalia Grybauskaitė, Lithuania took over the rotating presidency of the bloc on July 1, just in time for the accession of Croatia. Meanwhile, Portugal and its prime minister, Pedro Passos Coelho, have narrowly escaped a huge political crisis following the surprise resignation of a key government figure, Finance Minister Vitor Gaspar. That’s a serious setback for a state that, two years ago, was placed under the “assistance” of the eurozone and the International Monetary Fund (IMF).

To each his destiny, and to each his own headaches, in a Europe where distance generates indifference at best, prejudices or even hostility at worst: in Lithuania, the ups and downs of Portuguese politics do not interest the crowds; the Lithuanians are more worried about the turpitude of neighbouring Russia and Belarus, powerful foils that push the country ever further into the European game. And in Lisbon, as elsewhere in the west of the continent, no one even noticed the distant partner would be sharing the presidency for six months, presiding over the destinies of 500 million Europeans.

Three years ago, the Portuguese had their eyes on Athens, Madrid, Berlin, Paris, and even Washington. With no great hope of emerging from the tunnel any time soon, they are turning above all now to their national politicians, who are tearing themselves apart after two years of hard work under the tutelage of the “troika” of donors [the IMF, the European Central Bank, and the European Commission].

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The Lithuanian “horse cure”

In these times of eurozone crisis, the two capitals are but two sides of the same coin, and have more in common than may first appear. Lithuania also knows what recession and adjustment mean.

The year 2009 witnessed the collapse of the “Baltic Tiger”, with a recession that saw a 15 per cent drop in GDP, the most violent in Europe, and a painful awakening following the “miracle” of the post-Soviet years. The current centre-right government, unlike that of its Latvian neighbour, refused to beg before the IMF and administered the country its bitter medicine all by itself, without devaluing its currency.

Depending on their rank, civil servants saw their salaries cut between five and 50 per cent. Departments let go of some of their staff. Even retirees had their pensions cut. The plan has parliamentary backing and witnessed no popular uprising. Not all the problems have been resolved, but growth has picked up again. “You don’t like austerity? Try communism!” goes a popular saying along the Baltic shores that sums up the local attitude.

For its part, Portugal escaped communism, but not the IMF nor the ministrations of the eurozone emergency fund. Two years since running up bills it could not pay, the country is also pushing through a big adjustment plan, in hopes of regaining access to financial markets as early as 2014 – a very uncertain prospect, with the country still in midstream.

The zealous reforms of Portugal

Despite facing popular resistance that grows more vigorous every day, Portuguese leaders have shown a certain zeal. Among the countries of the eurozone that have received assistance, Portugal may be the only one to have anticipated the demands of its creditors. So far, the Portuguese leaders and the troika have laid particular emphasis on cleaning up public accounts, putting structural reforms somewhat to the side. Although that prevents the recession from getting deeper, it also risks feeding despair against the backdrop of massive unemployment.

The relative success of Lithuania, where the minimum wage is less than €300, does not really stir the envy of the Portuguese. And yet conversely, the unpleasant afterburn of the Portuguese hangover does not trouble the Lithuanian leaders. Grybauskaitė and her government have only one pursuit in mind: to join the monetary union as quickly as possible – ideally, they say, by January 1, 2015.

Nothing suggests the managers of the euro, whose fingers have been burned by Portugal and Greece, are quite so keen. One can only hope that they will firm up the foundations of the eurozone before letting it expand. They’ll need to come up with some strong arguments, though, to dissuade the very determined Grybauskaitė.

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