Socialism and Democracy

ISSN: 0885-4300 (Print) 1745-2635 (Online) Journal homepage: http://www.tandfonline.com/loi/csad20

The Memorandum of Understanding in Portugal

and the Portuguese Left

Antnio Simes do Pao & Raquel Varela

To cite this article: Antnio Simes do Pao & Raquel Varela (2015) The Memorandum of
Understanding in Portugal and the Portuguese Left, Socialism and Democracy, 29:3, 104-114,
DOI: 10.1080/08854300.2015.1104033

To link to this article: http://dx.doi.org/10.1080/08854300.2015.1104033

Published online: 08 Dec 2015.

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 Socialism and Democracy, 2015
Vol. 29, No. 3, 104 114, http://dx.doi.org/10.1080/08854300.2015.1104033

The Memorandum of Understanding in

Portugal and the Portuguese Left

Antonio Simoes do Paco and Raquel Varela

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The current reigning economic model in Portugal is based on

accumulation via expropriation. There is no investment. Instead, profit
is increased by reducing wages. Wealth is not being created but rather
is being destroyed by closing factories, by eliminating jobs, and by
cutting a huge portion of wages and public services. Four mechanisms
are involved, all imposed by the coercive power of the State: taxes, pri-
vatization of public goods, cutting wages, and erosion of the welfare
state. Leaving aside privatizations, it is estimated that the total wage-
reduction counting sales taxes, direct wage-cuts, and cutbacks of
public services amounts to between 30 and 40 percent.
Since 2009, the order coming down from the European authorities
has been to bail out the banking sector. With the advent of the 2008
crisis, the banks were in possession of a still undetermined amount
of toxic assets. Since then, each State has made every effort to exchange
these toxic assets for fresh ones.
As a result of State aid to the banks in Portugal, public debt rose
from 69 percent of GDP in 2008 to 102 percent in 2011. Bonds sank to
the category of junk, and the Socialist Party government, supported
by the right wing parties, PSD and CDS,1 asked for a bailout from the
troika. Despite the bailout, the debt rose to 130 percent. The State is
now even more bankrupt than it was before it asked for the loan.
The rescue turned into a kidnapping.
The request to the troika had been rationalized not in terms of
making the invested capital profitable, but rather in terms of prevent-
ing the State from going bankrupt. But the State was not bankrupt. It

1. Partido Social Democrata and Centro Demoratico Social, respectively. The PSD is the
main right-wing party in Portugal; it is liberal-conservative. Because of the 1974
75 revolution, all political parties in Portugal have names much more to the left on
the political spectrum than their real selves.

# 2015 The Research Group on Socialism and Democracy

 Antonio Simoes do Paco and Raquel Varela 105

was in good health, and only began to break down after bailing out the
capitalist interests (principally but not only in the financial sector). The
assets of the Banco Portugues de Negocios (BPN) and the Banco Esprito
Santo alone amount to 10 percent of GDP.2 But virtually the entire
banking sector, in 2008, was linked by a catheter to public funds. The
E70 billion troika loan came with the stipulation that it was for the
purpose of recycling publicly owned junk bonds and not for paying
salaries or assuring the functioning of the State. E12 billion were for
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recapitalizing the banks. Worthless paper assets were put in place of

assets with real value (salaries, public services).
At the level of the European Central Bank (ECB), there was a his-
toric drop in interest-rates and also in the obligatory deposits from
member-banks. The interest rate in March 2015 was down to 0.15
percent. At the same time, the ECB relaxed its criteria for extending
credits a step that would normally be inconceivable while also
becoming much more flexible in accepting the banks guarantees
(accepting questionable certificates for this purpose).
On the other hand, government bonds offered a secure investment
(albeit thanks to the troika, in the case of Portugal), making that
exchange of assets possible. In Portugal, the Socrates government in
2009 created guarantees totaling E20 billion and a line of credit of
E12 billion (protected by the troika). All this implies that the banks
are bankrupt and only survive through the infusion of capital from
the State. In the BPN, for example, its longtime stockholders could
keep the groups only non-toxic assets. And people living on salaries
paid the bill via the loan from the troika.
This crisis did not originate in a problem of management, but the
concern to bail out bankrupt capital with public money brought to
light a succession of corruption scandals involving top executives of
banks and other firms. Too big to fail, too big to jail . . . 3 They did not go
bankrupt. Liabilities were nationalized at a historic level while privately
held assets remained protected. The corporate media explained the crisis
superficially as a problem of corruption and mismanagement. But we
should not confuse the appearance of a phenomenon with its essence.
The crisis did not initially affect the working class. On the contrary,
there was at first (in 2008) a drop in prices. What happened is that the
measures taken to get out of the crisis to restore the average rate of
profit resulted in the destruction of wealth. To maintain the profit-
rates it was necessary to sabotage the economy, destroy production

2. R. Varela, Para onde Vai Portugal? (Lisbon: Bertrand, 2015).

3. [In English in the original].
 106 Socialism and Democracy

and resources, and throw millions of people into conditions of unem-

ployment and misery. What the media vulgarly referred to as redu-
cing the unit cost of labor has as its unmentioned counterpart
raising the profitability of invested capital. These are two sides of
the same coin. Pedro Ramos, former director of national accounts at
the National Institute of Statistics (INE), calculated that between 2007
and 2013, the portion of GDP going to waged or self-employed
workers dropped from 53.2 percent to 52.2 percent. The labor com-
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ponent lost E3.6 billion; capital surplus was fattened by E2.6 billion.4
The European Commissioner of Economic Affairs, Pierre Moscov-
ici, concluded at the beginning of 2015 that Five countries France,
Italy, Croatia, Bulgaria and Portugal manifest excessive disequili-
brium necessitating decisive political action and close monitoring.5
The preoccupation was legitimate from his point of view, or that of
the interests he represents. To understand it, we must enter the
domain of political economy. That is, we must look into the impact
of political concerns on the economic objectives of the troika.
Moscovicis dilemma was this: how to simultaneously restore the
value of his properties (expressed in the rents/interest-payments
obtained in the form of debt-servicing) while also preserving the gov-
ernability of the European Union and its member states.
The word crisis means at once difficult or dangerous conjuncture
and opportunity. These definitions fit the use that everyone has
made of this word with reference to the events of 2008.
What is dangerous, difficult or decisive for those who live from
their work? Like all cyclical capitalist crises, this one appeared in the
first instance in the form of an overproduction of capital. One
expression of this would be bubbles, reflecting for example the pro-
duction of more houses than are needed, at prices well above what
would be reasonable. One can also observe a rise in the unit cost of
labor, especially in the US, whose economy drives the system and
makes the crisis global. From another angle, one can see deflation in
the prices of goods and property. All this is the best that can happen
for a worker: a drop in prices.
The same does not apply to banks and or to the companies that
provide goods and services, which depend on these prices to guarantee
their returns. Therefore, the banks respond to the crisis with

4. L.R. Ribeiro, Crise tirou 3,6 mil milhoes aos salarios e deu 2,6 mil milhoes ao capital,
Dinheiro Vivo, 21 June 2014.
5. Bruxelas coloca Portugal sob vigilancia apertada por desequilbrios excessivos,
Jornal de Negocios, 2 Feuruary 2015.
 Antonio Simoes do Paco and Raquel Varela 107

countercyclical measures, in order to reverse the fall in profits. Central

banks lower the rate of interest in order to create liquidity, companies
lay off workers or close down in order to cut their losses, and govern-
ments send helicopter-loads of money to the banks and industry,
swapping valued for valueless assets. Real wealth wages and
public goods are traded for worthless paper. It is precisely in this
move against the crisis of valorization of capital that the crisis of (de)valor-
ization of wages begins. It is important to understand that we are not all
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in the same part of the boat. There are people in the hold (the majority),
some on deck, and some at the helm.
What distinguishes 2008 from other crises is the size of the drop in
the GDP and in the value of assets, together with the fact that, in an
economy much more globalized than that of 1929, the extent of the
damage is Homeric. At this level arises another problem with major
impact, namely the possible paralysis of Portugals international
trade laying bare how wrong it was to export at low prices, cutting
wages and thereby shrinking the internal market. The result is a gener-
alized deflation, but without countercyclical measures to arrest it.
As with a plague, countries function like organisms with different
resistances to the illness. Portugals immune system, like that of
Greece, succumbed more quickly.
What real alternative was there? To allow these private capitals
to fail! What would be the cost of this alternative way out? It would be
high, for sure, but not as high as the cost of breaking with the troika.
Letting these private capitals fail would cost the country a long time
to recover, because the economic policy followed by Portugal in
recent decades has weakened its productive fabric as a producer of
goods or social wealth. The whole process of favoring the profitability
of capital via privatizations and concessions itself carried heavy
costs for the State which ended up encouraging an orientation
toward fixed incomes without investments or expenditures: in other
words, inducements to sabotage production. Under these conditions,
however much it might cost to confront the financial markets,
nothing could be as costly as the path imposed by the troika and by
the ruling parties.
Some propose a second way. The left opposition in Parliament
including the Communist Party and the Left Bloc has called for the
renegotiation of Portugals public debt. They argue that a renegotiation
favorable to the majority of the Portuguese population will be inter-
preted by the markets as a default,6 and would cause capital-flight.

6. [In English in the original].

 108 Socialism and Democracy

This would in turn lead to public control over the banks and the finan-
cial system, so as not to leave the country in an even worse position,
without capital to initiate investments and production.
The European Commission is aware of the dangerous ground on
which it is moving. On the one hand, it must surmount a period of
deflation with no end in sight. To this end, the ECB reduced interest
rates to a minimum (0.05 percent) in March 2015. Given that we are cur-
rently in an expansionist phase of the cycle, under normal conditions,
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there would be no reason to set such a low interest rate. The routine
practice of banks is to raise the interest rate during periods of expan-
sion and to lower it during periods of contraction. Increasing or redu-
cing the money supply is no different from the behavior of any person
turning a water-tap on or off depending on the need for water. But the
bankers in Brussels and Frankfurt are becoming increasingly aware
that there is no water, which will be disastrous when the next cyclical
downturn arrives. What is certain is that it will come. This is what
Keynes called the liquidity trap.
Enforcing the Memorandum of Understanding depends, generic-
ally, on combining the behavior of two variables: the GDP and the
primary budget-balance, i.e., the surplus or deficit of public accounts
prior to interest-payments. This assumes that interest-payments will
be more or less onerous depending on the behavior of these two vari-
ables. The idea of the Memorandum is to create a primary surplus big
enough so that, once the interest-payments have been made, the public
deficit will not exceed a certain limit. In other words, the social func-
tions of the State and the salaries and pensions of public officials are
cut back as much as possible, so that there remains enough tax-
revenue to make the interest-payments on the debt.
This tremendous offensive against people will at some point have
to be halted. The European Commission recognizes this with alarm.
The limits are very narrow, even in this period of cyclical expansion
that is, a period in which profits are rising in the systems peak-
economy, that of the US, which has been enjoying a recovery since
the third quarter of 2009, thanks to the countercyclical helicopters of
bailout-money and the wage-cuts to fund them.
Looking (in Portugal) at variations of investment, of hours worked,
and of so-called total productivity of the factors, we see that even while
investment and hours worked are negative (or declining), the total pro-
ductivity of factors is always positive.7 This third variable is rhetori-
cally taken to reflect technological advances. But the crucial question

7. For more information, see the report of National Budget 2013, 15 17.
 Antonio Simoes do Paco and Raquel Varela 109

here is: How is it possible to have innovation or technological advances

without expanded investment? In fact, it is not possible. In Portugal,
profits have risen but investment has declined because more is
extracted from labor. Those who are still employed work more hours
or with greater intensity and are paid less. For example, we train a
worker and then lay him off, and the one who remains does the
work of two. This is what leads to the supposedly unavoidable expan-
sion of poverty. This is what destroys the country.
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But the European Commission seems to acknowledge, between the

lines, that such a situation cannot continue to be politically tolerated. It
doubts the capacity of the Portuguese State to continue pushing the
labor force to the point of exhaustion without facing a crisis of govern-
ance strikes and other forms of protest that will block the continu-
ing decline of wages. The EC recognizes that there is a political limit.
The electoral outcomes in Greece and Spain are an indicator of this.
In sum, the alternative of the troika is not just a matter of restoring prof-
itability at the cost of an accelerating impoverishment; it is also an
approach that, for this very reason, cannot continue to be implemented
for much longer.
As we have said, another approach is on the table: renegotiation of
the debt, so as to reach a compromise acceptable to all concerned. Such
a compromise, however, is highly improbable. If it was implemented
by the European governments, it would mean a de facto default. We
should keep in mind that the Memorandum was established so as to
replace the old devalued bonds with new ones issued by the European
authorities. The stability of these bonds depends on the capacity of the
troika to guarantee them. A renegotiation that was favorable to Portu-
guese workers could only signify sending a bill to the holders of these
bonds. This is and will be seen by the markets as a default. In the
worst case, the guarantees of the member States would in some way be
challenged and the bill would fall onto the workers of other European
countries, and the governments would see their public deficits jump to
unbearable levels, hitting their economies at a time when they are still
doing everything possible to recover the capital-losses resulting from
the crisis of 2008 or, as in the case of Germany, to preserve their
surplus in preparation for the next cyclical shock.
Finally, such an alternative favoring the workers would result in
capital-flight. This became quite clear in the case of Greece, where
debt-renegotiation carried out by SYRIZA reaffirmed the program of
the troika. Insistence on seeking a compromise with Europe acceptable
to everyone leads to this. Time is running against us unless we can take
forceful measures that go to the root of the problems.
 110 Socialism and Democracy

In the words of a familiar saying, if someone owes the bank 100 thou-
sand Euros, that person has a problem; but if that person owes the bank 100
billion Euros, then the bank has a problem. The only thing that is public
about the debt is its name. What is really at issue is a private negotiation.
The debt must be suspended in such a way as to protect small and
medium deposits and also the assets of Social Security. All the rest
should go into moratorium. The debt is a transmission belt whereby the
public patrimony is used to make bankrupt holdings viable. To suspend
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debt-payments is not easy. But it is the step that recognizes the impossi-
bility of reconciling the irreconcilable. Because it will provoke capital-
flight, the government must first impose total public control over the
banking and financial sector, in order to prevent that outcome.

Antecedents of the present-day radical left

The Portuguese Communist Party (PCP) was formed in 1921, not
from a split in the Socialist Party, but rather on the initiative of a sector
of revolutionary trade unionists influenced by the Russian Revolution.
A military coup in 1926 led to a long period of dictatorship. A
period of direct military rule (1926 32) was followed by a fascist
regime on the Italian model, approved by plebiscite in 1933, and
lasting until 1974, first under Antonio de Oliveira Salazar and then,
after 1968, under Marcelo Caetano.
Anarchism was the dominant influence in the Portuguese labor
movement until 1934, when the Salazar regime dissolved the free trade
unions, provoking an insurrectional general strike that failed. For the
rest of the dictatorship, it was the PCP, operating clandestinely, that con-
stituted the main organized opposition to Salazars Estado Novo.
In 1964, the Sino-Soviet split led to the formation of the main
Maoist organizations in Portugal: the Comite Marxista-Leninista Portu-
gues (CMLP) and its mass affiliate the Frente de Acao Popular (FAP).
During the last decade of the dictatorship, with the growth of opposi-
tion among younger people to the colonial wars (begun in 1961 in
Angola and in 1963 64 in Guinea and Mozambique), the so-called
Marxist-Leninist organizations would grow and multiply. Eventually,
there were more than 20 of them,8 of which the great majority merged
in 1974 75 to form the Partido Comunista (Reconstrudo) ([Refounded]
Communist Party, PC[R]) and its affiliate, the Uniao Democratica
Popular (Peoples Democratic Union [UDP]). On the margins of the

8. For a listing, see M. Cardina, Margem de Derta Maneira: O Maoismo em Portugal 1964
1974 (Lisbon: Tinta de China, 2011).
 Antonio Simoes do Paco and Raquel Varela 111

main Maoist organizations, another organization arose in 1970 that is

still active today, the Movimento Reorganizativo do Partido do Proletariado
(Reorganized Movement of the Party of the Proletariat [MRPP]), rebap-
tized in 1976 as the Partido Comunista dos Trabalhadores Portugueses (PC
of Portuguese Workers [PCTP/MRPP]).
The final years of the dictatorship also saw the birth of the first
Trotskyist groups: in 1973, the Liga Comunista Internacionalista (Interna-
tionalist Communist League); in 1975, the Partido Revolucionario dos
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Trabalhadores (Workers Revolutionary Party [PR]); and in 1976, the

Partido Operario de Unidade Socialista (Workers Party of Socialist Unity
[POUS]). The first two of these merged in 1979 to form the Partido Socia-
lista Revolucionario (Revolutionary Socialist Party), but one year later,
they split up again because of divergences in the Fourth International
over the Nicaraguan Revolution.
Apart from the Maoist and Trotskyist groups, during the period
immediately after the 1974 75 revolution, other leftist organizations,
more or less inspired by Marxism or by the Cuban Revolution,
played an important role for example, the Movimento Democratico
Portugues (Portuguese Democratic Movement [MDP]), the Frente Socia-
lista Popular (Peoples Socialist Front [FSP]), the Movimento de Esquerda
Socialista (Socialist Left [MES]), the Liga de Unidade e Acao Revolucionaria
(League of Unity and Revolutionary Action [LUAR]), and the Partido
Revolucionario do Proletariado-Brigadas Revolucionarias (PRP-BR). None
of these organizations, however, survived to the present.
Although many of these groups of the so-called extreme left led
an important number of trade-union, student, or neighborhood organ-
izations, the only one of them that got into the Parliament between 1975
and 1983 was the UDP. It would regain this position in 1991 95
through an accord with the PCP.
In 1998, representatives of the UDP, the PSR, and Poltica XXI (a
group of ex-PCP members), together with the independent Fernando
Rosas (ex-leader of the MRPP), began the process that led to the for-
mation of a new party, the Bloco de Esquerda (Left Bloc, BE), founded
in 1999. Critical of both social democracy and actually existing social-
ism, the BE registered a vertiginous electoral growth, reaching 9.8
percent (16 MPs) in the elections of 2009 and 10.7 percent (three
MEPs) in the European Parliament elections the same year.
At that point, however, internal divisions arose, and the partys
vote in 2011 dropped to 5.2 percent (eight MPs). In late 2011, the
most left-wing sector of the party, the Frente de Esquerda Revolucio-
nario (Left Revolutionary Front [FER]) quit the party and announced
a new party in March 2012, the Movimento Alternativa Socialista
 112 Socialism and Democracy

(Socialist Alternative Movement [MAS]). One year later, the right wing
of the BE (the Poltica XXI current) likewise withdrew, rebaptizing itself
as Forum Manifesto in July 2014. Under the name Tempo de Avancar, it
merged with the Livre (Free) party, led by former MEP Rui Tavares
of the BE, to stand in the October 2015 legislative elections.

On the left, you each ride your own bicycle

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In contrast to Greece and Spain, where popular response to troika-

imposed austerity led to the eruption of SYRIZA or Podemos, in Portu-
gal where the Memorandum of Understanding was signed by the
main political forces (PSD, PS and CDS), which together represent
78.4 percent of those who voted in 20139 rejection of the policies
and politicians associated with austerity is manifested above all nega-
tively, in a rise in abstention (which reached 47.4 percent) and in blank
or spoiled ballots (6.8 percent). After the huge anti-troika demon-
strations of October 2011, September 2012, and March 2013, which
brought more than 1.5 million people into the streets but yet failed to
topple the PSD/CDS government, people tended to withdraw from
the streets, no longer viewing them as an effective arena of struggle.
This incapacity to confront and reverse austerity policies has political
and social causes. Among these is certainly the sociological structure of the
country, in which 1,167,811 small and medium enterprises account for 99.9
percent of the Portuguese industrial fabric and 60.9 percent of the volume
of sales.10 Subtracting the self-employed from the total number of units,
the average number of employees of one of these small and medium enter-
prises is 8.28. The number of enterprises that fail each year is enormous
(32,473 in 2011; 17,748 in 2013), but so is the number that are started up
(31,986 in 2011; 32,060 in 2013).11 Another important given is the extremely
high level of youth unemployment: 34.8 percent. To this one should add an
enormous rate of emigration among young people. A November 2014
study found that more than 200,000 Portuguese between the ages of 20
and 40 had officially left the country since 2010;12 the real figures could
be closer to double that number.13

9. Legislative elections of 2011: PSD, 38.65 percent (2,159,742 votes); PS, 28.06
percent (1,568,168 votes); CDS, 11.70 percent (653,987 votes). Of 9,624,133 eligible
voters, 5,588,594 people (58.07 percent) voted.
10. INE (Instituto Nacional de Estatsticas), 2012.
11. Pordata.pt
12. INE, 2014.
13. Relatorio Estatstico da Emigracao Portuguesa (2014). The difference is due to the fact
that the freedom of travel permitted under the Schengen agreement and the lack
 Antonio Simoes do Paco and Raquel Varela 113

At the demonstration of April 25, 2015, one of us met an old friend, a

former Maoist militant and one of the rare Army officers to have deserted
for refusing to fight in the colonial war. We spoke of the absence of a
movement of young people and he said to me, pointing at a column of
Association of Pensioners (APRE) to which he belonged, Here you
have the student movement! Only its from a few decades ago!
This structure of the country certainly helps explain the capacity
for survival of parties like the PSD or the PS, but it doesnt explain
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everything. The inability of the PCP and the BE to get more than 10
percent of the vote is an important factor. The BE got 10.7 percent in
the European elections of 2009, but then began to implode. Today the
former BE is split into four entities that will contest the next elections:
the BE itself, the LivreTempo de Avancar, and the Agir (where the MAS
runs together with the almost nonexistent Partido Trabalhista Portugues,
which was colonized by former Left Bloc MP, Joana Amaral Dias,
and a group of former BE militants).
Going back in time, the left vote including here that of the PS
dropped from 3 million to 2.3 million between 1979 and 1991. It ceased
to be the majority, leaving that position to the right. Among organiz-
ations to the left of the PS and the PCP the so-called extreme left
or radical left the decline was even more brutal: from 280,000 votes
in 1979 and 305,000 in 1980 (about 5 percent of the electorate) to
125,000 in 1991, or about 2 percent (a decline of more than 50
percent)! This was the electoral expression of the process of counter-
revolutionary normalization that took place after the revolutionary
upheaval of 1974 1975.
More recently, if we consider as the left of those who are to the left
of the signatories of the Memorandum of Understanding with the
troika (thus excluding the PS), between 1999 (when the BE emerged)
and today the left has registered a shaky growth. The combined
vote-percentages of its four constituent parties Coligacao Democratica
Unitaria (United Democratic Coalition [CDU]),14 BE, PCTP/MRPP, and
POUS have been:

1999: 12.25 percent

2005: 14.83 percent

of official records of those leaving the country make it difficult to monitor the
phenomenon. But the number of entries registered in 2013 just by the three countries
with the highest immigration from Portugal a total of 55,910 entering the UK,
Switzerland and Germany is greater than the number recorded by the INE in
the same year (53,786) for permanent departures to all destinations.
14. CDU is an alliance of the PCP and the Greens.
 114 Socialism and Democracy

2009: 18.68 percent

2011: 14.27 percent

This left will enter the October 4, 2015 parliamentary elections with
each party pedaling its own bicycle.15 This dispersion reflects the lack
of agreement on immediate tasks how to stop the erosion of salaries,
employment and welfare; what to do about the debt; how to relate to
the Euro; how to build strong unions and other workers organizations;
how to stop the hemorrhage of emigration (not only of young people).
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It is significant that the principal radical left parties the CDU and the
BE focus above all on the credibility of their candidates in combating
corruption: Serious people, says the CDU; honest people, echoes
the BE.16
Portugal today is clearly the most backward of the southern Euro-
pean countries in the process of political reformation. Perhaps the pre-
dictable political defeats will encourage later radical initiatives. But
alternatives grounded in defeat normally have little to sustain them.

Translated by Victor Wallis

15. In 2011, Jeronimo de Sousa, secretary-general of the PCP, asked by journalists

whether his party would consider participating in a broader electoral front,
replied, Each one will ride its own bicycle.
16. CDU: Gente seria, which can translate as serious, honest people. BE: Gente de
verdade, which can translate as real, honest, or truthful people.