José Gago da Graça owns a Portuguese real estate company and has two identical apartments in the same building in the heart of Lisbon. One rents for €2,750 a month, the other for almost 40 times less, €75.
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Portugal’s finance minister, Teixeira dos Santos, left, with prime minister Jose Socrates in Lisbon on Thursday. Portugal followed Spain’s lead in agreeing to more austerity measures to cut the deficit.
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The discrepancy is a result of 100-year-old tenancy rules, which have frozen the rent of hundreds of thousands of tenants and protected them against eviction in Portugal. Mr. Gago da Graça has been in a lawsuit for a decade over the €75-a-month apartment, since his tenant died in 2000 and her son took over and refused to alter his mother’s contract, which dates to the 1960s.
“We’re the only country in Europe that doesn’t have a free housing market and that’s just amazing,” Mr. Gago da Graça said.
Rules like these, which economists also blame for contributing to Portugal’s private debt load, help explain why this nation of 11 million has followed Greece and Spain into investors’ line of fire.
The Portuguese government Thursday followed Spain’s lead in agreeing with the main opposition party on more austerity measures to cut the deficit faster than planned, to 4.6 percent of gross domestic product next year from 9.4 percent last year.
To help restore investor confidence, José Sócrates, the Socialist prime minister, will rely on tax increases and cuts in wages and corporate subsidies to erase an additional €2.1 billion, or $2.7 billion, from the deficit. “These measures are necessary to obtain what’s essential, the financing of the Portuguese economy, but also to defend the euro,” Mr. Sócrates said.
Overhauling the tenancy rules, however, was not part of Mr. Sócrates’s latest plan. One fear among investors is that governments across the developed world do not have the courage and power to tackle such long-standing structural weaknesses.
Indeed, they may struggle even to implement their latest promises because the cuts could bring unrest and economic paralysis.
In Greece, recent protests against austerity measures turned deadly. In Spain, the two main labor unions called Thursday on all public sector workers to strike on June 2 against the government’s planned salary and benefit cuts. In Portugal, smaller political parties also urged resistance. Jerónimo de Sousa, head of the Communist Party, said on Portuguese television that “people have to react with protest and struggle.”
Under pressure from other world leaders, the governments in Portugal and Spain are taking similar paths toward getting their countries back within the euro’s deficit rules. But while there are problems of profligacy common to European nations, and also to the United States, each of the 16 countries in the euro zone has its own economic problems, and differences in legal and social structures that appear most in need of reform.
Portugal’s antiquated tenancy rules, for instance, stem directly from two revolutions that cemented leftist antagonism toward owners and landlords: the first was in 1910, which ended the monarchy, and the second was in 1974, which overthrew a dictatorship and returned Portugal to democracy.
The post-revolution rules helped protect tenants, but also led to a chronic shortage of rental housing. This, in turn, persuaded a new generation of Portuguese to tap recently into low interest rates and buy instead — often in new suburbs — thereby exacerbating the country’s mortgage debt and leaving Portugal with one of Europe’s lowest savings rates, of 7.5 percent.
“This system of controlled rents is a major problem for the Portuguese economy, but we will probably be waiting for a generational change to have room for institutional reform,” said Cristina Casalinho, chief economist of Banco BPI, a Portuguese bank. Beyond fueling housing credit, she added, the system “basically stops flexibility and mobility in the labor market because you can perhaps find a new job in another city but it will then be very difficult to rent a house there.” Planty Hold your hand Golden brige Airfore Sunflower http://www.plasmetic.com/forums
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