Portugal’s reforms

As much of Europe braces itself for a tough future, Portugal is embracing greater output

As a result of the economic crisis and rising unemployment, a growing number of young entrepreneurs are taking their first steps in the production of fruits, vegetables and mainly mushrooms.

The success with which the Portuguese government auctioned off short-term government bonds in mid-February has raised expectations that the country might just be able to avoid being contaminated by the Greek turmoil.

Lisbon was able to raise €3bn by issuing short-term Treasury Bills in February. This was its largest debt auction since the country agreed to an EU rescue package.

Yield on the 3-month, 6-month and 12-month Treasury Bills were lower than at previous auctions and the size of the offer has had to be raised twice to meet strong demand.
The public debt manager at Banco Carregosa, Felipe Silva, said: “the clear tendency is that investors are attributing less risk to Portuguese debt.”

The yields on 10-year bonds issued by the Portuguese government soared to an unprecedented 17 percent two weeks earlier, raising fears that Portugal, like Greece, would be forced to apply for a second EU bailout.

These rates have, however, fallen back since. Many Portuguese economists are not quite convinced that the country would be able to return to the long-term debt market within 18 months as envisaged by the EU and the IMF. The Portuguese economy went through a deep recession in 2011 leading many analysts to give gloomy predictions for the country’s future.

The country’s economy minister, Álvaro Santos Pereira is adamant though that Portugal will not have to renegotiate the terms of its €78bn rescue package. He said: “we are focused on staying the course in terms of fiscal consolidation and economic reforms. We are working to the deadlines that have been agreed.”

In comments that were clearly meant to distance Portugal from what happened in Greece, Pereira said that his country was “driving ahead with economic reforms.” The latest example of a series of structural reforms implemented by the government includes a new competition law which eradicates the country’s largest barriers to competitiveness: a slow-moving justice system, an inflexible labour market and licensing laws that are overly bureaucratic.

The government also plans to amend its industrial licensing law to turn it into one of the most advanced in Europe. In terms of the new law 98 percent of activities would be exempt from licensing. Bankruptcy legislation will also undergo ‘sweeping reforms’ to replace the current system where it often takes years to wind up companies.

Portugal has recently approved major changes to the labour market. In terms of the new legislation, dismissed workers would be paid compensation well below the average in the rest of Europe. With previous legislation dismissed workers were paid three times the European average.

The new law also allows employers to send employees home during slack periods and to demand from them to work additional hours during peak times without getting paid extra. Bank holidays and other days off have also been cut with about 10 days per year without any increase in the remuneration of workers.

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