(Bloomberg) -- Social democratic parties are collapsing across Europe, the victims of rising nationalism and a failure to produce convincing answers to the euro area’s financial crisis. But not, it seems, in Portugal.
Prime Minister Antonio Costa’s minority Socialist government is riding high in opinion polls, supported by strong economic growth, falling unemployment and a budget deficit at historic lows.
Interviewed during a roadshow to drum up investment in London on Wednesday, Costa sounded like a classic center-left leader in the mold of former U.K. Prime Minister Tony Blair. He argued for open borders and free trade. He’s a big fan of French President Emmanuel Macron and his push for a more integrated European Union. He’s against state meddling in the disposal of Portugal’s privately held national champions.
“We’ve been able to find solutions within the system,” said Costa, when asked why there is no Portuguese version of the populist parties that have emerged across the continent, from wealthy Germany to struggling Greece.
With the economy rebounding -- it grew by 2.7 percent last year -- and immigrants relatively well integrated, there is less political space for populists to grow, he said.
That wasn’t a given. Portugal was among the countries hardest hit when the euro area’s sovereign debt crisis exposed deep economic imbalances throughout Europe’s southern periphery from late 2009. It had to take a bailout from the EU and the International Monetary Fund, and the brutal austerity measures that came with it. Education and health spending was slashed. Unemployment soared.
Costa’s Socialist Party scraped to power despite coming second in elections in 2015, dependent on the parliamentary votes of more radical leftist parties. He clashed with other euro-area governments early on by reversing some of the country’s bailout terms, boosting the minimum wage and public-sector salaries. Growth followed as the wider euro-area economy revived.
By now Costa and his government have become something of a cause celebre for Europe’s Keynesian left, who see the success of Portuguese policies as proof of the case against austerity.
Costa, however, sees the government’s path as carefully calibrated to be neither fiscally expansionist nor austere. Last year, his finance minister, Mario Centeno, was chosen to lead the Eurogroup, a formal stamp of approval from fiscal conservatives in Germany and elsewhere.
To be sure, Portugal’s economy remains fragile. The country’s sovereign debt level may have fallen several percentage points last year, but at 126 percent of gross domestic product it remains the third highest in the euro area.
Critics say the government has relied too much on strong growth and increased tourism, doing too little to make the economy more competitive over the long term. While the debt to GDP ratio has fallen, in absolute terms, gross government debt is still increasing.
And there are other circumstantial reasons why Portugal remains a populist-free zone for now, says Antonio Barroso, senior euro zone analyst at Teneo, a consultancy.
For one thing, Portugal didn’t suffer the sudden wave of migrants that other EU nations saw in 2015, so fear of immigration -- a boon to populists from Hungary to France -- is not a hot political issue. Plus, Portugal had an outlet for anti-bailout protest in the form of the long established Portuguese Communist Party and Left Bloc, leaving little space for new populist movements.
Finally, the Socialist Party itself renewed its leadership, blurring responsibility for the austerity measures it once agreed to.
“That change in leadership was crucial to ensure the Socialists weren’t punished by voters in the way that Pasok was in Greece,” says Barroso.
On the right, meanwhile, Portugal’s experience with a dictatorship that ended as recently as 1974 may have helped to inoculate the country against more nationalist appeals.
Asked how he’ll ensure Portugal’s fiscal weaknesses aren’t exposed should there be another economic downturn in the EU, Costa says he’s relying on continued growth and reforms, but with a big emphasis on a new common euro-area investment budget to help poorer members such as Portugal become more competitive.
That wouldn’t amount to the systematic fiscal transfers that so rile northern Europeans, or even a new round of EU integration as it would merely “complete” the euro as intended, said Costa. And it would, he said in true Blairite style, be good for everyone.
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