The “Memorandum of Understanding” in Portugal and the Portuguese Left

By António Simões do Paço and Raquel Varela

The currently 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, privatization 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%.

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% of GDP in 2008 to 102% 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%. 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 preventing the State from going bankrupt. But the State was not bankrupt. It 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 Português de Negócios (BPN) and the Banco Espírito Santo alone amount to 10% of GDP.2 But virtually the entire banking sector, in 2008, was linked by a catheter to public funds. The €70 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. €12 billion were for 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 historic drop in interest-rates and also in the obligatory deposits from member-banks. The interest rate in March 2015 was down to 0.15%. 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 Sócrates government in 2009 created guarantees totaling €20 billion and a line of credit of €12 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 group’s 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 and resources, and throw millions of people into conditions of unemployment and misery. What the media vulgarly referred to as “reducing 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% to 52.2%. “The labor component lost €3.6 billion; capital surplus was fattened by €2.6 billion.”4

The European Commissioner of Economic Affairs, Pierre Moscovici, concluded at the beginning of 2015 that “Five countries – France, Italy, Croatia, Bulgaria and Portugal – manifest excessive disequilibrium 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.

Moscovici’s 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 governability 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 production 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 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 governments 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)valorization of wages begins. It is important to understand that we are not all 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 Portugal’s 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 generalized deflation, but without countercyclical measures to arrest it.

As with a plague, countries function like organisms with different resistances to the illness. Portugal’s 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 Portugal’s public debt. They argue that a renegotiation favorable to the majority of the Portuguese population will be interpreted by “the markets” as a default,6 and would cause capital-flight. This would in turn lead to public control over the banks and the financial 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%) in March 2015. Given that we are currently in an expansionist phase of the cycle, under normal conditions, 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 expansion and to lower it during periods of contraction. Increasing or reducing 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, generically, 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 variables. 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 functions 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 system’s 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 productivity of factors is always positive.7 This third variable is rhetorically taken to reflect technological advances. But the crucial question 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 expansion of poverty. This is what destroys the country.

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 governance – strikes and other forms of protest – that will block the continuing 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 profitability 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 Portuguese 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.

In the words of a familiar saying, if someone owes the bank 100 thousand 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 debt-payments is not easy. But it is the step that recognizes the impossibility 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 António 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 constituted the main organized opposition to Salazar’s “Estado Novo.”

In 1964, the Sino-Soviet split led to the formation of the main Maoist organizations in Portugal: the Comité Marxista-Leninista Português (CMLP) and its mass affiliate the Frente de Ação Popular (FAP). During the last decade of the dictatorship, with the growth of opposition 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 twenty of them,8 of which the great majority merged in 1974-75 to form the Partido Comunista (Reconstruído) ((Refounded) Communist Party, PC(R)) and its affiliate, the União Democrática Popular (People’s Democratic Union, UDP).  On the margins of the 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), rebaptized 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 (Internationalist Communist League); in 1975, the Partido Revolucionário dos Trabalhadores (Workers Revolutionary Party, PRT); and in 1976, the Partido Operário de Unidade Socialista (Workers Party of Socialist Unity, POUS). The first two of these merged in 1979 to form the Partido Socialista Revolucionário (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 Democrático Português (Portuguese Democratic Movement, MDP), the Frente Socialista Popular (People’s Socialist Front, FSP), the Movimento de Esquerda Socialista (Socialist Left, MES), the Liga de Unidade e Ação Revolucionária (League of Unity and Revolutionary Action, LUAR), and the Partido Revolucionário do Proletariado-Brigadas Revolucionárias (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 organizations, 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 Política 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 formation of a new party, the Bloco de Esquerda (Left Bloc, BE), founded in 1999. Critical of both social democracy and “actually existing socialism,” the BE registered a vertiginous electoral growth, reaching 9.8% (16 MPs) in the elections of 2009 and 10.7% (3 MEPs) in the European Parliament elections the same year.

At that point, however, internal divisions arose, and the party’s vote in 2011 dropped to 5.2% (8 MPs). In late 2011, the most left-wing sector of the party, the Frente de Esquerda Revolucionário (Left Revolutionary Front, FER) quit the party and announced a new party in March 2012, the Movimento Alternativa Socialista (Socialist Alternative Movement, MAS). One year later, the right wing of the BE (the Política XXI current) likewise withdrew, rebaptizing itself as Fórum Manifesto in July 2014. Under the name Tempo de Avançar, 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

In contrast to Greece and Spain, where popular response to troika-imposed austerity led to the eruption of SYRIZA or Podemos, in Portugal – where the Memorandum of Understanding was signed by the main political forces (PSD, PS and CDS), which together represent 78.4% of those who voted in 20139 — rejection of the policies and politicians associated with austerity is manifested above all negatively, in a rise in abstention (which reached 47.4%) and in blank or spoiled ballots (6.8%). After the huge anti-troika demonstrations 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% of the Portuguese industrial fabric and 60.9% 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 enterprises 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%. 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

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 APRE (Association of Pensioners) to which he belonged, “Here you have the student movement! Only it’s 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 doesn’t explain everything. The inability of the PCP and the BE to get more than 10% of the vote is an important factor. The BE got 10.7% 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 Livre—Tempo de Avançar, and the Agir (where the MAS runs together with the almost nonexistent Partido Trabalhista Português, 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 organizations 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% of the electorate) to 125,000 in 1991, or about 2% (a decline of more than 50%)! This was the electoral expression of the process of “counterrevolutionary 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 – Coligação Democrática Unitária (United Democratic Coalition, CDU),14 BE, PCTP/MRPP, and POUS – have been:

1999:  12.25%
2005:  14.83%
2009:  18.68%
2011:  14.27%

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). 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 European countries in the process of political reformation. Perhaps the predictable political defeats will encourage later radical initiatives. But alternatives grounded in defeat normally have little to sustain them.

Translated by Victor Wallis


1. Partido Social Democrata and Centro Demorático 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.

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

3. [In English in the original].

4. L.R. Ribeiro, ‘Crise tirou 3,6 mil milhões aos salários e deu 2,6 mil milhões ao capital’, Dinheiro Vivo, 21 June 2014.

5. ‘Bruxelas coloca Portugal sob vigilância apertada por “desequilíbrios excessivos”’, Jornal de Negócios, 2 Feuruary 2015.

6. [In English in the original].

7. For more information, see the report of National Budget 2013, 15-17.

8. For a listing, see M. Cardina, Margem de Derta Maneira: O Maoismo em Portugal 1964-1974 (Lisbon: Tinta de China, 2011).

9. Legislative elections of 2011: PSD, 38.65% (2,159,742 votes); PS, 28.06%  (1,568,168 votes); CDS, 11.70% (653,987 votes). Of 9,624,133 eligible voters, 5,588,594 people (58.07%) voted.

10. INE (Instituto Nacional de Estatísticas), 2012.


12. INE, 2014.

13. Relatório Estatístico da Emigração Portuguesa (2014). The difference is due to the fact that the freedom of travel permitted under the Schengen agreement and the lack 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.

15. In 2011, Jerónimo 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 séria”, which can translate as serious, honest people. BE: “Gente de verdade”, which can translate as real, honest, or truthful people.

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