Portugal faced same banking crisis

Last Wednesday evening, I was in Lisbon courtesy of a Christmas present from my wife.

We travelled to the Portuguese capital for a short break and were taking a tour of the city after dusk.

They have two important monuments there, one dedicated to the famous explorer Vasco da Gama, the other a giant statue of Christ with outstretched arms, which is located above the city.

The striking feature of both iconic Portuguese sites was that they were bathed in green light, displaying solidarity with Ireland ahead of St Patrick’s Day.

It says something about a nation’s spirit of community and friendship to do something like that — allow two of its most important features to be associated with another nation’s identity.

Portugal, you may remember, was lumped in to the acronym Pigs during the Global Financial Crisis to describe the economic crisis besetting Portugal, Ireland, Greece, and Spain.

It was invented by some clever clown in investment banking working from London and was gleefully seized upon by parts of the Irish media and commentators therein.

It was an ignorant, sneering, and disgusting term then, and is even more outrageous now as we can carefully analyse what actually happened in 2008 and after.

The rich irony is that Pigs was created as a term by the same system that foisted a debt-fuelled mania upon financial markets worldwide.

It was global investment banks that devised the esoteric financial instruments that allowed scandalous volumes of debt to be written off by institutions and individuals in many markets, and that egregious behaviour was especially pronounced in smaller economies that were structurally incapable of managing any subsequent turbulence.

There is no way you can attribute the debt frenzy that gripped Portugal as being a function of the rapacious greed of its citizens.

Any analysis of the data, with an accompanying series of anecdotal meetings with people who live there, will show it as clearly as it appears in Ireland, Spain, and even Greece.

Instead, you have to explore the lofty environs of the richest financial institutions on the planet to find traces of how entire countries have been left with fractured financial and political systems.

In Lisbon, it is clear that the political problems thrown up by the financial crisis are significant.

Hard left communist parties have high visibility there, as they do in Spain.

Much of that can be tied back to history, when strong anti-capitalist movements existed in both countries, but they have been reignited by the recent financial and economic crisis.

The hard decisions taken in that country, in a similar vein to Ireland, have thrown up political consequences that challenge the working of a true democracy.

It will take years for Portugal to extricate itself from this economic predicament.

Unlike Ireland, its economy is narrowly based, with tourism and agriculture having relatively high shares of output.

Its foreign direct investment levels are low compared to Ireland, hindered by relatively high corporate tax rates and language barriers that keep its appeal limited for mobile investors.

Yet none of that should detract from the rich history of an economy that was once a trading powerhouse.

Its colonial influence has dissipated, although connections to economies such as Angola and Brazil remain strong.

Both of those are now struggling as energy markets have capsized, plunging Brazil into recession and weakening the recent strength of its African ally.

For Europe, it is important that economies such as Portugal recover and help build a more cohesive eurozone.

The strong liquidity policy instruments introduced by the ECB in recent months are designed to assist that process.

In Lisbon, you can see evidence of that as the construction sector helps advance the capital of a population of 10.5m people.

As Portugal shows solidarity towards Ireland we too should be strong allies of this important so-called ‘peripheral’ economy as it strives to recover a level of economic normality.

Joe Gill is director of corporate broking at Goodbody Stockbrokers. His views are personal.