A Lesson of Democracy from Portugal — Against the Constitutional Austerity in Georgia
The 2007–2008 US mortgage crisis soon became contagious for the US financial speculatory markets that plunged the Wall Street into panic. The panic caused the plummet of the credibility of the whole American banking sector that was echoed in almost all of the global financial centres. As the crisis went the private financial institutions were constantly losing their power to liquefy the assets. Henceforth, the leading hegemonic paradigms were set to be adjusted to the solution of the crisis.
Ironically, the neoliberal deregulatory mechanisms that have always been pushed for more “free market” came under harsh scrutiny and the lobbyists commenced to compete in asking for governments to get bailouts. The ideology of “too big to fail” was generally implied for manipulating the discourse that if these “huge” financial speculators would not be bailed out then the whole system would collapse. Consequently, the banks and other financial institutions were to be “rescued” by accumulating money from the citizens (who are mostly never spared when it comes to their private individual debts).
Nevertheless, it is worth to highlight that some incremental neo-keynesian regulatory measures were put in place between 2010 and 2014. These seemingly alternative regulations would have some power to halt the further downfall of the banks and would to some extent alleviate the burden from the ordinary taxpayers, as they would not have to pay for the crimes of the financial sector. With the introduction of Volcker Rule in the United States, the commercial banks were separated or in some cases even restricted to have an access to deposit banking (the 1999 repeal of of the Glass-Steagall Act gave too much freedom to the banks). The almost identical regulatory measures were adopted in the United Kingdom — the Vickers’ proposal of ring-fencing and regulating the LIBOR (The London Interbank Offered Rate). Withal, after these regulatory mechanisms were put in place this was the first time in history when hedge funds fell under a regulatory oversight (Langley, 2015).
Unlike, the United States and the United Kingdom, in the European Union, the story unveiled with a different scenario. Although like in the US and in the UK the blame was redirected from capital to labour, the EU scenario varies for the following reasons: The EU is not a country, but a single market of unequally developed sovereign economies with multi-layered bureaucratic apparatus lacking the democratic and political credibility (although there is the Lisbon agreement which never fully gave political power to European Central Bank to overrun the national policies) of pushing for applicable solutions to each member state, where every country has its own vision.
The burst of financial bubbles in Greece paved the way to unleashing the fear for the European single market to collapse. The French president Nicola Sarkozy fearful that the other EU countries would follow the Greeks to become incapable of avoiding further monetary value deterioration of the stocks of the Southern Eurozone countries offered solutions that would involve all the EU countries to pool their strength together in order to address the crisis solidarily. He also shifted his fiscal conservatism to more neo-keynesian views. However, Germany was reluctant to help, but instead, Germany played the derogatory discourse of the “Lazy Greeks” and “PIIGS” (Portugal, Ireland, Italy, Greece, Spain). This German discourse was administered to held accountable the South European countries and these countries needed to be punished (Crespy & Schmidt, 2012).
Though, after the further pressure from the EU and even the US the German Chancellor Angela Merkel and the German Finance Wolfgang Schäuble caved in. The German policymakers realised the deepening of the crisis would affect the single market and would hit German private entrepreneurship power as well. Therefore, as the strongest EU economy, Germany, pushed for extreme conditionality by imposing harsh austerity measures on the “PIIGS” countries, while being committed to the discourse created for the German electorate and the German taxpayers. After several rounds of belated talks, Germany persuaded France on the effectiveness of ordoliberalism that would require the whole EU to follow.
The South European countries and Ireland were expected to recover their economy through strict austerity, although it is to be highlighted that the IMF was less enthusiastic of the EU, ECB and European council to push for the policies that had not worked well in South American countries several decades earlier.
The push for the austerity policies proved to be a social disaster for crisis-affected countries. The forced massive budget cuts caused the deceleration of wages and the deprivation of welfare from the people, while German capital grew. Nonetheless, the austerity politics failed to find legitimation in Portugal.
The Portuguese case bares unique characteristics. Firstly, unlike Greece, Portuguese economy was generally weak and there were almost no financial bubble speculations there. Thus the German wrath was less felt in Lisbon, but the austerity conditionality was still applied by the right-wing Social Democratic Party of Portugal. The logic behind this action was to prove that Portuguese economy could soon be capable of increasing GDP growth through public spending and budgetary cuts and alleviating the labour regulations would bring in more foreign investments to the country. The flashpoint was that Troika was afraid that the Portuguese public debt would take its toll if the recovery would not come sooner through the positive GDP growth. By 2012 Portugal had one of the highest public debts in the EU accounting for 112% of the GDP.
“The austerity caused the unemployment to skyrocket to 17.3% by 2013. Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, a number of public holidays were revoked and the working day was extended. In a two-year period, education spending suffered a devastating 23% cut” (Jones, 2014).
Budget cuts were also applied to the healthcare and social security. Moreover, from the macroeconomic standpoint of the purchasing power of the population was damaged, hence decreasing the demand on the market affecting the growth of the GDP (OXFAM, 2013) .
The public was outraged. The workers’ unions, student groups, and academics were capable of organising and massively delegitimizing the government’s discourse, thus constructing a counter-discourse led by the Socialist Party of Portugal that was capable of creating a coalition with Communist Party, Left Bloc, and the Greens. The new coalition was capable of unseating the Social Democrats after the 2015 elections, by promising to pursue the abandonment of austerity politics in Portugal.
The new government led by the prime minister António Costa, was successful in resisting to the pressure of troika. Unlike the Greek SYRIZA government, he kept his promised and reinstated all the pre-austerity politics, but with a progressive twist, by enabling the increase of public investments, increasing the minimum wage and pensions. The sceptics of this measure considering Socialist policies to fail or even to bring a bigger catastrophe.
“The promised disaster did not materialise. By the autumn of 2016 — a year after taking power — the government could boast of sustained economic growth and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved to 2.1% — lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules. Meanwhile, the economy has now grown for13 successive quarters” (Jones, 2017).
In addition, in order to avoid further political speculation that the Troika would portray him as a radical, Costa made a smart move endorsing the right-wing Marcelo Rebelo de Sousa for a rather symbolic post of the president in the parliamentary democracy system of the Portuguese Republic (Ames, 2016)
Consequently, Portugal was the only example in the post-crisis Global North to avoid the full social devastation of the austerity neoliberalism by doing the contrary to the economic conditionality through the implementation of heterodox economic measures. This is a precedent of the political judgment of the government being congruent with the democratic will of the people, a dissimilar plotline from Greece. The capability, the audacity and the willingness of the Portuguese government to put the welfare of the populations as its policy objective rather than the directives of Troika is what real democracy is about. As the Portuguese government was successful by legitimising the voice of the people engraved in the anti-austerity policies, Troika has little to no say in the Portuguese affairs now.
We must understand and learn from Portugal that democracy is real when it really reflects the social and economic needs of the populations, and not to pursue the directives of the agents of international finance and capital that have no other interest but to design Georgia for the international business to exploit it. Since the dismantlement of the Soviet Union, Georgia has fallen under experimental economic policies that have hollowed out the social dimension of the politics in the country. These neoliberal experiments of financialisation have cost the ordinary Georgians a severe price.
According to the 2017 IMF data, outstanding loans with the commercial banks consist 59.01% of the total GDP in Georgia. Whereas, 717,48 people per 1000 adults are borrowers of the commercial banks . The decline of wages, high unemployment, lack of jobs and the plummeting of purchasing power per capita, underpaid, irregular, and unstable jobs, these are the main reasons for people to undertake the risky endeavor of taking loans. Withal, the number of suicides committed because of indebtedness is growing every year and the number of fatalities in the workplace is still high (there is a lack of health and safety regulations and the labour inspection does not function properly).
Unfortunately, the Georgian government along with the dominant economic scholars push for economic policies that free finance from almost all the social responsibilities. The state constitution of the country limits budget expenditures to 30% of the national GDP, which already makes austerity constitutionally guaranteed. This happened after the 2010 constitutional amendments of the so-called “Liberty Act” that also limits the state’s sovereignty to manage fiscal politics and for parliament to have the power to determine taxation (Parliament of Georgia, 2010). However, the new government yielded to the pressure of the business association and their lobbyist organisations (e.g., Transparency International representation in Georgia had been vehemently campaigning to endorse this bill and portray the amendment of the taxation as a referendum issue to be a democratic matter). This has stripped the ordinary taxpayer the prospects of decent work, universal healthcare, free education, and universal social support programmes. This constitutional austerity limits the parliamentary power over the fiscal policies (e.g. parliament lacks the power to issue taxation policies that are against flat taxation) (Japaridze, 2017).
The low wages guarantee the impoverishment of the population, thus lowering consumption capacity. Thereby, the socioeconomic situation in the country is abysmal and hinders the political participation of most people in the political process. The only solution is a shift in the ideological and logical framework of the economic politics. Portuguese anti-austerity policies are an exemplary case of going against all odds of the hegemonic economic and political pressure to assure the triumph of democracy. Georgia needs to break with the vicious cycle–in many cases adopting policies that are even more radical than the requirements by the international financial institutions–of neoliberal austerity and instead place human welfare and development as the locomotive of the economic growth and progress.
And yes, a democratic alternative is possible, we can learn it from Portugal!
Ames, P. (2016, January 12). Why Portugal has become an oasis of stability. Portugal bucks Europe’s populist trend, but financial fragility remains a threat. Politico. Retrieved from https://www.politico.eu/article/why-portugal-has-become-europes-oasis-of-stability-antonio-costa-prime-minister/
Crespy, A., & Schmidt, V. (2012). The Discursive Double Game of EMU Reform: The Clash of Titans between French White Knight and German Iron Lady. Paper for the 9th Biennal Conference, (pp. 350–368). Ottawa.
IMF. (2017). Financial Access Survey: Georgia. Retrieved from http://data.imf.org/?sk=E5DCAB7E-A5CA-4892-A6EA-598B5463A34C&sId=1460043522778
Japaridze, S. (2017). The Oligarchs’ Constitution. Jacobin Magazine. Retrieved September 21, 2017, from https://www.jacobinmag.com/2017/06/georgia-constitution-georgian-dream-taxes-article-94
Jones, O. (2017, August 24). No alternative to austerity? That lie has now been nailed. The Guardian. Retrieved from https://www.theguardian.com/commentisfree/2017/aug/24/austerity-lie-deep-cuts-economy-portugal-socialist
Langley, P. (2015). In Liquidity Lost (pp. 124–145). Oxford University Press.
OXFAM. (2013, September). Portugal Case Study. THE TRUE COST OF AUSTERITY. Retrieved from https://www.oxfam.org/sites/www.oxfam.org/files/cs-true-cost-austerity-inequality-portugal-120913-en.pdf
Parliament of Georgia. (2010). Constitution of Georgia: Article 94. Tbilisi. Tbilisi. Retrieved from http://www.parliament.ge/uploads/other/28/28803.pdf