Democracy, Sovereignty and the Eurozone: Portugal

by George Hatjoullis

Joining the EU, and the eurozone, involves giving up sovereignty. The EU and its institutions are democratic. Indeed they are more democratic than the political processes within many member states. I have elaborated this (apparently subtle) distinction in previous blog posts. It is conceivable that the loss of sovereignty that comes with membership can exacerbate anti-democratic tendencies within member states. There has been some hint of this in the past but it has not been explicit or easy to prove. This is no longer true as the situation in Portugal demonstrates.

Following national elections a left-wing coalition has emerged capable of (just) forming a government with a majority in Parliament. The President has denied them the right to form a government. Instead he has invited the incumbent conservative Prime Minister first to try to form a minority government. There is nothing unconstitutional going on but it is rather futile. How will this conservative government rule without a majority in Parliament? More serious is the reason the President has given for his decision;

In 40 years of democracy, no government in Portugal has ever depended on the support of anti-European forces, that is to say forces that campaigned to abrogate the Lisbon Treaty, the Fiscal Compact, the Growth and Stability Pact, as well as to dismantle monetary union and take Portugal out of the euro, in addition to wanting the dissolution of NATO…This is the worst moment for a radical change to the foundations of our democracy…After we carried out an onerous programme of financial assistance, entailing heavy sacrifices, it is my duty, within my constitutional powers, to do everything possible to prevent false signals being sent to financial institutions, investors and markets.

In other words he is refusing to allow into power a government that might undo the loss of national sovereignty that membership of the EU and eurozone entail. It is constitutional because the President has this power under the constitution. It is not however democratic because he is denying power (for the moment) to the group representing a majority in Parliament. This has huge implications for the EU, eurozone and the forthcoming referendum in the UK on continued EU membership.

There is often talk of a conspiracy by some political ‘elite’ to ensure ever closer union within the EU. The objective is written into the Lisbon Treaty but the assumption is that this is a voluntary act by self-determining people. Moreover, it is not irreversible though reversing it may be difficult. The action of the President of Portugal does rather support this elitist conspiracy idea. It is a very disconcerting development. It is doomed because without a parliamentary majority the government is unable to govern but the act and the sentiments behind it have let the cat of the bag so to speak. I am sure Farage Le Pen et al have taken note.

The problem in Portugal, ironically, is not the EU but the eurozone. The imposition of a balanced budget/no debt ideology (masquerading as economics) on the eurozone, by the Germans and their acolytes, has created great and unnecessary pain in the eurozone and especially in Portugal and Greece. Domestic voters and their representatives have felt powerless to resist this ideology. They are powerless it seems even when they vote do so. This ideology, whilst supported by many economists, is disparaged by just as many. There are situations when balanced budget and debt reduction is appropriate. There are situations when a deficit and debt accumulation may be appropriate. It is a matter of context not ideology. To impose this ideology merely eliminates policy degrees of freedom. Economists always argue that more choice is good except it seems on policy. Odd that.

The situation in Portugal needs to be watched closely. Greece elected a similar coalition. However, it was allowed to take power. It then confronted the reality of the ideology now dominating the eurozone and, after some nonsense, capitulated. It could have taken the option of a time-out but chose not to do so. Democracy continued to work despite protestations to the contrary. In Portugal democracy seems to be struggling. This ain’t good.