Portugal's prime minister is "living on another planet" unions said recently after Carlos Passos Coelho predicted that investment in the crisis-hit economy would bounce back next year.
The right-wing premier's upbeat assessment of the country's prospects came after fresh data showed unemployment has hit a record 15% in the second quarter, and the country's economy contracted for a seventh quarter with industrial production down 4.4% in June, twice the pace of the euro area.
The government, which has been implementing a brutal austerity programme under a 78-billion-euro EU-IMF bailout, forecasts unemployment will increase to 15.5% for all of 2012 and to 15.9% in 2013. And that's just the official figures - the true level is 22% say unions.
Passos Coelho, together with his colleague in Madrid, Mariano Rajoy, is one of the Eurozone's austerity zealots. He has been pushing through a punishing programme of cuts and deregulatory reforms hurting low and middle incomes hardest.
Yet, in his autumn statement this week, the prime minister predicted that that 2013 would be a 'year of investment."
Unions responded that this was an "over-optimistic vision of a prime minister who lives on another planet that is nothing to like ours."
"Obviously, this year we will see a significant downturn of the economy and there is nothing to suggest that next year the economy will grow. Rather, we have a stagnant economy," said Arménio Carlos, leader of the CGTP trade union confederation.
The CGTP General Secretary predicted that unless government policy changes drastically, "there won't be any more jobs created, nor mechanisms for the development of the economy and there will be no answers to the great problems of the country."
"We do not have blue skies and the sun's not shining. The sky of Portugal is still full of black clouds," he concluded.
Austerity hurts the people
Austerity measures are having a lethal effect on the Portuguese people and the economy.
Since taking power last summer, Passos Coelho's PSD/PP coalition government has cut public sector workers' jobs, wages and working conditions and reduced welfare benefits. A cut to the traditional summer and Christmas bonuses has robbed workers of an equivalent of one month's pay-on average about €1,600. In addition, certain holidays have been scrapped, limits on working hours have been removed and it's now easier for employers to hire and fire.
Pioneering health and social programmes, such as the country's drug rehabilitation strategy, a model for other countries, face collapse amid unsustainable budget cuts. And among the unemployed the risk of social exclusion is serious - 1 out of 2 jobless have no access to unemployment benefits.
Austerity hurts growth
Pulling down growth rates is a sharp fall in domestic demand. Consumer spending has been hit by wage cuts (in the first five months of this year state labour costs fell 7.2%), record unemployment and a rise in VAT. And the latest projections for the Portuguese Banco de Portugal point to a fall in gross fixed capital formation, the main component of investment, by 12.7% this year, after a 11.3% fall in 2011. Private sector investment is set to shrink 16.7% this year following a 15.8% drop in 2011. In some sectors investment has dropped as much as 30%. Exports won't take up the slack as they are expected to rise by half as strongly (3.5%) as they did last year (7.6%)
The UGT leader Joao Proenca, who has until recently been less critical of the government than the more militant CGTP, weighed in against the prime minister too.
He said that Passos Coelho was trying to convince the Portuguese that the 'reduction of the deficit is a measure that will cause miraculous economic growth." But he added: "With the crisis in Spain and Italy and Europe with virtually no economic growth, investing exclusively in export growth through low wages" was . No concrete measures have been announced for economic growth and curb unemployment, he said, adding that wage cuts would destroy economic growth and jobs.
Hundreds of thousands have protested against austerity and deregulatory labour reforms over the past year, organised by unions in two general strikes, and independently through social media networks.
In early June tens of thousands of protesters marched in the capital Lisbon and the second city Oporto against the labour reforms. The protests were organised by the trade unions days after parliament had approved them.
On June 18 ferry services in Lisbon were stopped by a one day strike, and on Tuesday, striking dockworkers crippled Portugal's main harbours.
Public transport was hit by strikes in Oporto on July 27, and again on Wednesday, a 24-hour strike hit rail and bus services in Lisbon and the northern city of Oporto.
Last month, on July 11 and 12, doctors and hospital staff held a two-day strike in opposition to a budgetary squeeze that has cut back access to health care for thousands.
Unions have been arguing for more progressive and humane alternatives to paying down the deficit and finding funds for investment and growth, including demanding a contribution to fixing the economy from those that can afford it.
This week the CGTP reiterated the demand for an increase in taxation on dividends and profits from stock-market listed companies. It also argues for a rise in the minimum wage to boost domestic spending, a reduction in working hours without loss of pay to increase employment and a targeted programme of investment in agriculture, fisheries and mining to improve the trade balance.
Still, who is listening? The financial markets appear to share the same dangerously unreal faith in neo-liberal economic self-flagellation as the prime minister.
Financial news service Bloomberg reported Thursday that credit-default swaps on Portugal had dropped as low as 725 basis points, from 1,515 in January and 1,237 in May. "The contracts have fallen by the most of any government this year and by more than every nation except Ireland in the past month. The implied probability of Portugal defaulting on its debt has declined to 48 percent from 73 percent as optimism that spending cuts and tax increases will get finances back on track outweighs a shrinking economy and rising unemployment," the article stated.
Pretty much every indicator in the real economy suggests there should be deep pessimism about austerity doing anything other create conditions for yet more austerity. That the banksters and the political leaders in the West like Passos Coelho should be optimistic shows just how out of touch they are.