July 10, 2012
Portugal is a country that I’ve always enjoyed, full of warm, welcoming people, excellent wine, and great weather.
I came to Porto, the country’s second largest city of some 1.5 million, to get a sense of what’s been happening since the eurocalypse.
1. Capitulation of hope
Excluding the city’s still-bustling tourist areas, it’s very quiet around the city.
Street-level retail shops and restaurants are either devoid of customers or have been vacated. On many blocks I’ve seen more “for lease” signs than operating businesses.
Officially, the unemployment rate is 15.2% in Portugal, and the economy will contract 3% this year… yet the clear lack of economic activity suggests the real figures are much greater.
Without doubt, reality has set in. Locals have capitulated ‘hope’ that the good times will magically re-appear and have adjusted their habits accordingly.
2. Austerity: too little, too late
For the last several years, national government spending has contributed nearly 40% of Portugal’s GDP. In Europe, this has only been bested by (you guessed it) Greece and Ireland.
Including local and provincial governments, in fact, total government expenditure here surpasses 50% of GDP. It’s insane.
Under the terms of their bail-out last year, they’ve been forced to cut back. Sort of.
The government recently tried reforming public worker benefits, for example. But Portugal’s Constitutional Court overturned the move, ruling that cutting public workers’ Christmas bonuses and generous paid holidays is unconstitutional.
They’ve also made attempts at overhauling the broken pension system. But then the president himself, Mr. Anibal Cavaco Silva, began complaining about his own pension being trimmed.
You really can’t make this stuff up.
All the national and local governments have really been able to do is cut small, rounding-error line items from the budget… landscaping, trash collection, things like that.
You can see the results on the streets– the grass is growing knee-high in public areas away from Porto’s main tourist spots.
But none of this is going to make a dent in the budget. ‘Austerity’ here is truly meaningless, and these guys are going to slide right back into insolvency. I’d expect Portugal’s 10-year yield (currently 10.3%) to rise.
3. Absurdly cheap.
Portugal is now one of the cheapest civilized places in the world to live. As part of the contraction, both asset prices and many retail prices in Portugal have dropped substantially.
The middle/upper-middle class segments of the real estate market have gone no-bid, and investment property owners with mortgages to service are getting desperate.
To give you an idea, I’m renting a spacious 3-bedroom, 2000 square foot luxury apartment in a new(ish) development that was completed during the real estate boom a few years ago. It’s costing me a whopping $60/night.
The complex is a ghost town. I’ve seen four human beings in as many days, and as I stand on the terrace surveying the other units, most of what I see is vacant.
Property owners I’ve spoken to say that they don’t want to rent to locals under a long-term lease because the locals can’t pay. And when they stop paying, the government makes eviction very difficult.
This makes their market of potential lessees quite small, hence cheap prices.
4. Gold businesses are doing well
All over town you can see these new ‘cash for gold’ type franchises being set up. It’s crazy, you’ll even see two or three of them on the same block across the street from one another. It’s like Starbucks.
Many of them are doing brisk business as locals look to raise spare cash. And the businesses are only buying gold, not selling.
5. Lack of productive youth
There is a noticeable, disproportionate lack of young people between the ages of 15 to 35 or so.
It seems that much of Portugal’s youth is heading to greener pastures, most notably to Brazil where they can easily obtain residency, find a job, and integrate into society… or to frontier markets like Angola (a former colony with a booming resource economy).
No doubt, people with skills and courage are getting the hell out.