As Portugal posts cheery economic figures, economists debate the link between strong growth and rising debt. But like in other eurozone nations, there's no consensus as to the right economic policy.
Image: picture alliance / J. Woitas
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With the EU's strongest economic growth - 1.6 percent - over the past quarter, the number of unemployed declining by 10 percent in recent months, and now another tranche of its debt to the troika repaid, Portugal looks like it is on its way out of crisis. That, at least, is the cautiously positive message from Prime Minister Antonio Costa, backed by the European Commission.
Prime Minister Antonio Costa is bullish on Portugal's growth prospectsImage: Getty Images/AFP/T. Charlier
But there's a downside: The national debt has risen to 133.1 percent of GDP, and the interest rate Portugal has to pay to borrow money is now almost 4 percent and climbing. Economists warn the banks aren't working and the economy urgently needs investment. There is, they say, much to be done before the country is on the right path.
Tourists aren't enough
"We do not have any exact data yet, but the most recent economic growth is likely to have been caused by tourism in the summer," economics professor Aurora Teixeira explained. Not least because of the uncertain situation elsewhere in the world, the travel industry in Portugal is booming. Tourists and convention visitors are flocking to the country and spending millions.
But this will quickly change again in the winter, Teixeira said, showing Portugal's need for more even growth: "We also have to produce and export more goods if our economy is to function again - and not just rely on services in the tourism sector."
Less cost-cutting, more growth
The Algarve brings in the tourists - at least in the summerImage: picture-alliance/ZB/J. Kalaene
The government says the growth in tourism is sustainable and is the result of far-sighted political decisions. Officials say a large amount of money has flowed into diversifying the industry - and that means Portugal no longer offers only summer sun and beaches, but has become an all-year destination.
"There is still a lot of room for improvement," said sociologist and left-wing politician Joao Teixeira Lopes, whose party supports the minority Socialist government in parliament.
Above all, Teixeira Lopes said, the situation had brightened after many austerity measures adopted by the previous government had been scrapped. Lower taxes and a slight increase in purchasing power, especially for public servants, had stimulated domestic consumption and tax revenues: "Portugal has shown that it can improve its outlook and heal its economy even without the fetters of austerity."
Public servants went on strike on November 18, demanding higher wagesImage: Picture-Alliance/dpa/N. Fox
Should the state save?
But here there are deep divisions. The dispute over austerity policy has broken out again, with the fronts hardened: Socialists, communists and the left-wing bloc want to bring about growth through more government spending. The conservative opposition and many economists are warning against this, calling instead for greater discipline to be the priority: "We cannot spend more money than we have," Teixeira said. "It is better to make certain sacrifices now, so that the economy can work again and the state can later distribute wealth more fairly."
Portugal's employers agree. They have now declared war on the government - and especially on its prestige project, the minimum wage. The Socialists have promised to raise the figure to 600 euros ($635) a month by the end of the legislative period, with it climbing next year from 530 to 557 euros.
The employers' association is livid. For exports to be competitive, it says industry needs low labor costs - and many of the small and medium-sized companies in particular cannot afford the higher wages. It says they threaten to nip Portugal's growth in the bud.
Only structural changes can help
"We have to save for many years if we want to make our way out of the crisis," Teixeira said. Only thoroughgoing structural changes can lift Portugal out of its permanent misery, she said - and that also includes cutting government spending.
But spending has been rising steadily since austerity was abandoned. And because the economy is not growing as strongly as forecast, the shortfall can only be compensated for by new taxes, she said.
This in turn frightens away foreign investors, bringing Portugal back to the economic abyss, Teixeira said - warning that not even the rosy recent figures could change this.
The new look of tradition
Portugal is experiencing a slight economic recovery, and fresh inspiration has been coming from traditional sectors. A younger generation of Portuguese manufacturers is rebranding their grandparents' products.
Image: Tilo Wagner
Demand from Italy
A few years ago, Pedro Olaio gave a Milan-based shoe manufacturer a pair of traditional Portuguese work boots. The Italian businessman was delighted. This type of handmade leather boot was not known outside of Portugal, so Pedro Olaio set up his own brand.
Image: Tilo Wagner
New jobs
The leather boots are produced in a shoe factory in Benedita, some 100 kilometers (62 miles) north of Lisbon. It has focused on work shoe production. 24 employees work in the factory. The production of Pedro Olaio’s boots has created six additional jobs here.
Image: Tilo Wagner
Long history
Factory owner Lino Serralheiro comes from a family of shoemakers. After Portugal joined the European Economic Community in 1985, international companies moved production into low-wage Portugal. At the time, Serralheiro had more than 100 employees.
Image: Tilo Wagner
The decline
After the EU’s eastern expansion and the boom in China, Portugal was hit by a crisis. Many companies were forced to shut down. A positive result was that, today, Portuguese are no longer just suppliers. Many design their own brands now – with success. Since 2009, the export of shoes ‘Made in Portugal’ has grown by 34 percent.
Image: Tilo Wagner
Top quality
Portuguese shoes are of good quality and even handmade shoes come at affordable prices. The rubber for the soles of the leather boots comes from old tires. The recycled material is part of the business concept. Pedro Olaio calls his handmade boots ‘Green Boots'.
Image: Tilo Wagner
New meets old
Tradition meets modernity – Following this motto, 'Green Boots’ earlier this year released a limited special edition of its boots with a design of Portugal’s current top concept artist, Joana Vasconcelos. The company made 399 pairs, selling them for a mere 350 euros (482 US dollars).
Image: Tilo Wagner
From the courtyards...
The village of Castanheira is famous for weaving. Baskets are still made in the barns and courtyards, just as they were 100 years ago. But the craft remains the secret of the old generation. 55-year-old Rosa is the youngest basket weaver in this region of Portugal.
Image: Tilo Wagner
...into online shops
Until a few years ago, the baskets from Castanheira were sold exclusively in Portugal. But during the economic crisis, hardly anybody spent their money on traditional picnic baskets. Nuno Henriques had an idea. He improved the baskets’ design and now sells them online.
Image: Tilo Wagner
Expensive raw materials
Producing the baskets is a laborious process. The rushes are harvested along the river Tejo which flows some 70 kilometers east of Castanheira. The rushes are then dried and bundled. The natural raw material comes at a high Price. Each bundle costs 8 euros.
Image: Tilo Wagner
Hold your breath
The rushes are trimmed to the same size and then sulfurated in a big wooden barrel. The chemical helps soften the wood, which makes working with it easier. But before you open the barrel – take a deep breath. If it enters your lung, sulfur can give you painful stings for hours.
Image: Tilo Wagner
Plain colors
The rushes then undergo quality control checks. Light-colored rushes with no stains are put to one side. The rest are dyed in different colors. The basket makers from Castanheira work mostly with green, red, blue and natural yellow shades.
Image: Tilo Wagner
Hard work
With a special weaving loom, the rushes are turned into a kind of a mat that can be sewn into the shape of a basket. "My hands don’t ache," says basket maker Rosa. "But after a few hours, your back hurts because you can’t stand up straight."
Image: Tilo Wagner
Granddad's name as a trade mark
Nuno Henriques embellishes the picnic baskets with a simple leather handle and his trade mark. The young entrepreneur calls his baskets ‘Toino Abel’, after his grandfather, who – more than twenty years ago – first introduced his grandson to the art of weaving baskets.
