The second round of the Portuguese budget came after I filed on Friday, at the local evening news hour when Prime Minister Pedro Passos Coelho addressed his countrymen. The government deficit cuts required by the global bail-out will be reached by cutting 30,000 public sector jobs and making the remaining civil servants work 40 hours per week instead of 35.

Portuguese old age pensions will be paid at age 66 rather than 65. In return another slice of bailout money will head for Lisbon which expects the cuts will save euros 6 bn (c$8 bn) per year starting in 2016. This will halve the govt deficit to the 3% target from a current (optimistic) estimate of 5.5% to satisfy the “troika” of lenders: the European Union, the European Central Bank, and the International Monetary Fund.

The center-right government essentially has accepted austerity and likely negative growth to meet the troika's demands. In a country of 7 mn people, another 30,000 jobless will cut spending hard. And the consequences may hit Portugal's flourishing tourist sector. Read more »

Today at least the latest joblessness levels are down to 7.5% after 165,000 new hires took place. Are there any lessons for austerity-afflicted Europen economies? Can they copy our modest economic recovery? Will 0.5% interest rates after the ECB rate cut do the trick? Can countries cope by copying?

Russell Jones of Llewellyn-consulting.com (John Llewllyn's London think tank) warns that it is not that easy.

“Not every country is in a post-crisis funk, not every pre-2007 policy regime has been abandoned, and not every economic model has been junked. There are success stories alongside today’s failures and cautionary tales.

“Most emerging economies proved to be resilient in the face of the economic and financial shocks to the developed economy core that, in previous decades, would have been expected to derail their growth prospects. This suggests that they must be getting policy right to some extent ‒ or that they started from a favourable position e.g. with huge reserves, the result of lessons learned (painfully) following the 1998 crisis.

“However, the general lessons from emerging economies for rich economies may be limited. The overall set of policies that might help to deliver rapid and successful catch-up growth is unlikely to be the same as those required to maintain growth at the global frontier. Nevertheless, lessons can be learned, such as the critical role of education in nurturing output potential, and the enduring importance of building macroeconomic resilience.

“Not every rich country succumbed to the crisis. Germany has proved more resilient than most, and Canada and Australia, benefitting from their status as resource-rich developed economies,

managed to avoid financial meltdown. The Nordic economies too have come through relatively unscathed. But just as there are dangers in looking to the developing world for answers, so there are risks in looking elsewhere in the developed world for salvation.

“External models are often idiosyncratic, subject to their own underlying fragilities, and their viabilities can have a limited lifespan. There is a risk that a country seeks to embrace the latest ‘flavour of the month’ development model just as it reaches its sell-by date. Recall, for example, Britain’s early and mid-60s efforts to adopt French indicative planning; or the swathes of US businessmen who headed across the Pacific to learn about Japanese business practices in the 1980s. Both proved ill-timed and misguided. Alternatively, imagine the broader economic and political consequences if every nation sought to follow Germany’s neo-mercantilist model.

“Neither should it be forgotten that economies are often prisoners of their own history. The development of their institutions and the habits of their population become deeply entrenched and resilient to change. Often it has taken a traumatic shock, such as a war defeat or the most persistent of policy re-orientations, to effect a lasting transformation.

“Perhaps the soundest conclusion, therefore, is that while an entire external model may not be replicable, the adoption of carefully chosen individual policy experiences probably can be.”

Here in Portugal there is every sign that the original 3-yr austerity program imposed on the country in 2011 is going to continue. This was the result of civil service bonus and other spending cuts in the current budget being ruled illegal by the Portuguese Supreme Court. The result is that euros 1.3 bn of cuts have to be found somewhere for 2013 plus another euros 4.7 bn in 2014-6 to keep the country on track for the conditions of its euros 78 bn bailout. The sharpest cuts will be in 2014, euros 1.3 bn for this year and 2.8 bn for next.

The best thing about the latest (April) Estratégia orçamental (budget strategy) is the measures to help lure in smaller foreign investors with cheap financing and tax holidays. Portugal also wants to dismantle some of the Club-Med-Fascist-style cartels which keep people from becoming hairdressers or taxi drivers or wait-staff even when jobs are available. Unfortunately neither measure is enough to stop the big Kahuna from the budget: the largest percentage increase in income tax and social contributions in the EU (as a proportion of gross national product.)

More for paid subscribers from Britain, Israel, Canada, Ireland, Finland, the Netherlands, Switzerland, and Chile. Again we have a quarterly with mixed messages.

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Pres. Obama proudly announced that BASF is coming to the US to build a new chemical plant. We anticipated this when we sold BASFY stock last year figuring the German major would have trouble in the chemistry business. Its dearer European feedstocks  would put BASF at a competitive disadvantage to US chemical producers.

Spain has had a longer real estate crisis than almost any other country and is far from resolving it. Under Spanish law, those unable to pay your mortgage can be evicted from their home or business or office. But the mortgage bill doesn't disappear, and the evicted still have to pay it off. As a result every building in Madrid wears a sign offering shops, garages, apartments, or office sites for sale, rent, or lease.

In the more depressed south of Spain things are worse than in the capital, since unemployment is over 35%. So the state of Andulusia has decided to waive evictions for the unemployed poor. For up to 3 years, homes of poor jobless people owing money to banks or real estate companies will be taken over by the state government. Thetywould only have to pay 25% of their income max in rent, up to euros 400 per month, however much they owe. Banks and realtors holding empty properties for more than 6 months will be fined. The idea is to force the sale of empty homes and make housing more affordable. But of course nobody in their right mind would buy an empty house or store on the off-chance that the prior tenant's rights will no longer be honored. The maintenance and service in buildings are at risk as well as landlord income crashes down.

Other autonomous Spanish states are thinking of copying and some leftist municipalities also already have Andalucian rent controls.

Portugal is taking a different tack to try to resolve its budget problems after the attempt to cut 14^th month bonuses for government workers was overruled by the country's Supreme Court. The Supremes decreed that 13^th and 14^th month bonuses are a national tradition and cannot be taken away from civil servants while being paid to those in the private sector. So Portugal now is trying to stimulate growth rather than sticking with austerity. It is copying another western Euroland country with low taxes and business incentives, Ireland, not exactly a model of success in the crisis.

Apart from luring in Chinese investors, Portugal also wants other foreigners. One goodie is a cut in corporate taxes. Lisbon also offers financing to smaller companies. The impact will be to raise government spending. Portugal has done better in the crisis than its big neighbor, with an unemployment rate of nearer 17% than 25%, and a boom in exports. But it too suffers from empties: stores, homes, office blocks. Moreover its state deficit remains at double the target of 3% and its economy is expected to shrink this year.

Overall, there is now greater skepticism over forcing budget deficit cuts to grow your economy, because the key study by IMF-Harvard economists Carmen Reinhardt and Kenneth Rogoff has been debunked for poor statistics.

More from Brazil, Colombia, Chile, Singapore, Ireland, Israel, Finland, Spain, Sweden, and Australia.

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Greetings from freezing Portugal to which we travelled on Sunday from rainy Spain. The supposed weather compensation for rotten Iberian Peninsula economies turns out to be another myth.

I am beginning to feel sorry for the German speakers we ran into at the Oxford Reunion in Madrid. Lawyer HTW lives with his wife (who works parttime, also as lawyer, for a big bank) while raising their toddler son in Munich. Being in the top 5% of German earners means they cannot afford to buy an apartment in a nice neighborhood. The price is 30 years' worth of rent, with the current cheap mortgage rate not likely to last for long. Under German tax rules, there is no deduction from your income tax for buying a property to live in, only if you buy it to rent it out. So while landlords are favored, common folk are squeezed out of the market.

Of course this explains not only why Germans are so nasty about the greater wealth of Spaniards and Portuguese (who own real estate when Germans do not). It also explains why Germans are so heavily invested in the Algarve (south coast) where we are now shivering along with Germans, Danes, Britons, and Portuguese also around in the out of season.

HTW is an international tax lawyer trained in Oxford, luckily before the fees for foreign students went sky-high, or he would have student loan debt to add to his woes. But taxes are already a big breaking point inside the European so-called Community.

While the push to impose a financial transaction tax gains few adherents among people with international savvy, the matter of tax-dodging for Germans above all by Swiss and Austrians who serve as intermediaries and speak the same language causes serious disagreement. Most Austrians think their lady Finance Minister, Maria Fekter, should not be sticking with Austrian banking secrecy and resisting German pressure to turn over names. The old excuse for Austro-secret accounts was to protect spies from points east from being found out by the Comecon countries, which aren't Communist any more. Today Trend Magazine of Vienna reported that 75% of Austrians want Fekter to stop protecting tax-evaders with secret bank accounts.

More for paid subscribers follows including company results from Singapore, Ireland, Canada, and Brazil, some good and some mixed, and some bad. We also have news from Israel, Switzerland, Spain, Britain, and Belgium.

There will be a blog tomorrow but maybe none on Weds. which is a holiday here. Portugal, unlike Spain, had a revolution in the post-Fascist period. And today the Socialist Party is calling for the country's Eurexit, and a return to the escudo with a 30% devaluation. People who agree show their support by wearing carnations, cravos, the symbol of the overthrow of the post-Salazar right-wing government. Portuguese demonstrators put the flowers into the guns of the military, spiking them, and soon the conscripted soldiers joined in.

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