Comment by jventura | Hacker News Reader

Comment by jventura | Hacker News Reader

As with many things, I think the truth lies exactly in the middle! Let me explain..

In 2011, Portugal applied to an IMF bailout. What do you do when you beg someone for their money? You comply! You don't come out for the streets saying you won't pay! You say creditors exactly what they want to hear. You (seem to) reduce costs, you cancel holidays, you go even beyond what creditors ask you to do. You get smart, you understand you're in a weak position and take the best advantage of it. You don't do like the Greeks who let their egos be greater than their brains, and be on the spotlight for being over-spenders by saying they won't pay their creditors. That's what the government did in 2011-2015 and it worked! We got out of the spotlight and stop being perceived as over-spenders..

In 2015 a new government was elected. With the influx of tourists, and being seen as people who saved some money (and learned their lesson), the new government was in a really better position to try "the revival". They started reinvesting and giving the appearance that we are growing (and some things are, but also government spending). And it seems to be working so far...

So, what really seems to work? Both things. When you're in a weak position you comply, and then when you get to a stronger position, you negotiate. So both type of governments were needed at exactly their time.. A good timing - I think that was the key to the current success!

> the new government was in a really better position to try "the revival". They started reinvesting and giving the appearance that we are growing (and some things are, but also government spending). And it seems to be working so far...

This statement is very far from the truth.

The current acting government actually cut investment spending to record levels as part of their renewed austerity effort, both with higher taxes and slending cuts, that resulted in record low deficit spending.

While the previous goveremt of Portugal focused on higher income taxes focused on the middle/upper class and public sector workers, the current acting government forced increases in gas prices mixed with off-the-bool spending cuts in the form of captivation of expenditures.

The key factor in Portugal's economic turnaround is the fact that the austerity program was actually surprisingly effective at fixing Portugal's problem, as is demonstrated by the fact that the portuguese recession that started way back in 2008 ended in 2014, right before the end of the austerity program.

How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to positive GDP growth rate)?

Saying austerity led to the end of a recession is like saying that cutting costs at your restaurant led to an increase in customers, or allowed you to charge higher prices for your food.

Greece and Italy are fighting austerity because they take the traditional economic stance - government needs to spend tax dollars on increasing investment, education, employment, etc. instead of cutting investment costs and ensuring tax money is channeled to interest payments.

Perhaps foreign investors saw that Portugal was taking its austerity seriously and began to increase investment, reassured their money would be relatively safe. But how could austerity lead to the boom in tourism and exports cited in the NY Times article?

Perhaps austerity destroyed internal spending power (as Mario Monti put it when interviewed about his government on US media) and this made the country more competitive and cheaper to external consumers?

> How does austerity (reducing government expenditures in order to control/safeguard public-sector debt) cause the end of a recession (shift from negative to positive GDP growth rate)?

One of the key factors was that the national trade balance became net positive during the period, as the private sector was pushed to invest in exports, but I'm sure the issue is much more complex and can't be pinned down to a single cause.

Nevertheless the undisutable fact is that the recession that started in 2008 and caused the then acting government to nearly bankrupt the state in 2011 with their record public spending push, piling yearly deficits of over 10%, ended in 2014 during the third year of the bailout program. That fact is somehow ignored by anti-austerity critics who insist that no recovery is possible when reality shows otherwise.

Our sucess boils to a tourism increase (driven from political instability in other countries and a very laxed tax system for foreigners), cheap oil (that gave room to increase taxes on petrol) and historically low interest rates.

> a very laxed tax system for foreigners

Do you think this is one of the reasons (or the major one) that so many Portuguese people live abroad? [1]

[1]: https://i.redd.it/2683a6np1g621.jpg

No. The reasons some many people live abroad, IMO:

1. A culture built on world exploration. Our golden age myth is sailors leaving the country to find new lands. Our great epic book is "Os Lusíadas", a celebration of the discovery of a sea route to India by the Portuguese explorer Vasco da Gama inspired by Virgil and Homer's epics.

2. Many people left the country between WW2 and 1974 (due to a ruling dictatorship, a colonial war, and economic difficulties). These were mostly uneducated people that went to France, Germany, Switzerland to become low wage workers.

3. A newer wave of emigration (of much more educated people) due to low salaries in Portugal. I know a lot of people (mostly engineers) that more than tripled their wage simply by moving to more developed countries: Germany, UK, Sweden... Similar to moving to SF/NY when you're in rural US.

Thank you for the insight.

>"Our sucess boils to a tourism increase (driven from political instability in other countries and a very laxed tax system for foreigners)"

Can you elaborate on what or how the tax system is very lax for foreigners?

There are a number of tax breaks for foreigners, meaning effectively if you have not live in Portugal for 5 years you do not pay hardly any tax. This is dependent on you getting good advice.

"Dividends are Tax free from the UK for 10 years, 20% on local income. EU passport if you spend 500k on property"

https://news.ycombinator.com/item?id=18165995

As an anecdote, Madonna is nowadays living in Portugal. Media says the reasons are the Lisbon sunlight and her son wants to learn soccer.

I moved here from UK mainly because of Brexit, attractive tax regime helped, also more English spoken than in Spain, more Brit friendly than Spain (not so many drunken UK hooligans), combination of stunning beaches and a safe large City like Lisbon is quite rare, Athens (basket case economy), Barcelona( v high crime rate). Also Great wine food and fantastic infrastructure, only spoiled by insane car & energy prices and totally inept drivers. Foreign sourced income is easy to get tax free for 10 years via dividends, local income tax is 20% but social costs still high to employ software engineers. Golden Visa also attracted me in case UK crashes out no deal, passport only requires €500k invested in property. Lisbon Cascais is booming because so many foreigners moving here and spending shit loads of cash on property, renovations furniture, services, schools etc, this has boosted the economy far more than Tourism increase, this also pays a lot of property related taxes and energy taxes and VAT 23%, so for the first time in donkeys years Portugal managed to balance the books last year. Many very rich successful entrepreneurs and professionals - huge numbers from Brazil, many Scandinavians, not as many Brits as expected (but now increasing), I was also surprised by how many US and Polish expats I have met living here.

>What do you do when you beg someone for their money? You comply! You don't come out for the streets saying you won't pay!

It's not like the creditors were helping from the goodness of their hearts. They made stacks of money off it, off those imposed austerity measures, off (if you excuse the description) of bleeding the working class dry. Let's not forget who profited the most off the situation generated by the European debt crisis: big German banks...

It's in the citizen's rights at least to protest for an alternative solution.

Blaming the big German banks is counterproductive when the real culprit is always the government that does the borrowing and the spending, along with the people that elected them.

It’s how socialism works. Spend other people’s money on handouts then blame capitalism for the public debt.

Lending is a two party interaction. Both sides have responsibilities and not holding German banks responsible for their profligate lending is bad. It is well known what happens when a country is flooded with credit at low interest rates. You shouldn’t just blame on party of the two party interaction.

While this is true, the borrower is going to know their financial situation better and have somewhat more control over it, so it would make sense to blame them more.

Lenders are free to deny loans.

There's economic research that shows it's more efficient to regulate (in some sense, "blame") the lenders, because borrowers are often desperate. When you're desperate, you have reduced capacity to objectively judge the consequences of borrowing and are also less sensitive to "blaming", potential penalties for overborrowing, etc. From this perspective, putting all the blame on borrowers while exonerating the banks is exactly the opposite of what we should be doing as a society, if we want to avoid another debt bubble.

I'd fully agree with you if we were talking about small entities. Maybe we can not expect every citizen to fully learn the details and pitfalls of all those financial constructs available and thus want to protect them with regulation. But when we are talking about nation-states... whom else can we expect that kind of due diligence from to make properly informed decisions and understand the consequences if not governments of nations, representing millions of people?

Lets imagine some democracy votes an incompetent fool into their highest office, who starts making "bad deals". Would you expect other countries to not agree to those deals for reasons other than their own interests?

It's not the lender's responsibility to concern itself with the consequences of the lending for the borrower. I understand the impulse to hold people to act with more care for others, but I think it's ultimately counter-productive to absolve the party that is fundamentally the only one responsible of their responsibility for their predicament. This is a government when we're talking about, not a child.

And yet it’s also children’s lives we’re talking about; not just the government. Country-scale things like this are difficult to boil down.

It's those childrens' parents that are responsible for empowering a responsible government, not German parents.

I mean we can blame the Germans, but it's not going to change anything. Borrowers will find someone to lend to them. It's only the borrower who can avoid getting under crushing debt.

If the leader is willing to give money to someone that they know isn't able to pay back, then they surely are to blame.

That depends. Usury is a counter example. There's a reason loan sharks are viewed with disdain. That isn't to say the borrower doesn't bear any responsibility, but consent, apparent or real, is insufficient to categorically absolve the lender.

It is the lender’s resposibility (and the govrernment’s responsibility to regulate lenders) when said lenders can loan enough money such that that economy is wrecked if the loans are paid back. Making one bad loan is not a problem. Making millions of bad loans that endangers the economic well being of a nation is a problem.

> Lending is a two party interaction.

Actually, it's not. Borrowing money is the sole responsibility of the borrower, who decides how much money he wants to borrow based on the impact it will have on their finances.

For a loan to materialize, the borrower needs to be aware of how much it will cost him and for how long he will have to repay or service the loan.

That's all the borrower's responsibility.

Only after the borrower is aware of the immediate and long-term impact of his actions will the borrower petition a lender to execute the loan. The lender's only role in the deal is to double-check the borrower's assumptions to ensure the borrower is actually capable of keeping his word and pay back the money he is borrowing.

It's also extremely disingenuous to criticise higher interest rates as they are a safety mechanism that reflects the borrower's ability to repay future loans, and are supposed to act as pressure to dissuade the borrower from digging himself into a finantial hole.

> You shouldn’t just blame on party of the two party interaction.

That's simply wrong on so maby levels. The only part who holds any form of responsibility is the borrower. He's the one making the decision to ask for more loans being fully aware of his financial situation and the impact the new loans have on his cash flow. He is the only part of the arrangement who actively petitions for the deal and has full and complete access to his economic state. The borrower is the only part who has the legal power to sign on the loands. The borrower is the only part who actively seeks the loans and actively engages with each and every single lender in the world to fulfill his desires for more debt.

Today I learned that lenders cannot deny loans, poor souls forced to give money away to everyone that asks for it, without any kind of background checks.

> Today I learned that lenders cannot deny loans

Lenders can deny loans and they can also reflect the risk in the interest rate. However, lenders only provide their input after the borrower evaluates the impact of a loan on their finances and decides based on his evaluation that he clearly and unambiguiusly is willing and capable of servicing and repaying such a loan in full. Only after that decision is expressly made by the borrower can lenders be involved, and their involvement is restricted to rubberstamp the deal decided by the borrower.

How silly of me to think that it was the lender's responsibility to access the possibilities to get the money back.

Love these capitalism excuses.

Give money away, no questions asked, blame the borrower.

Your belief about the state of knowledge of borrowers is wrong. I teach mathematics at a community college and it is clear that a knowledge of percents and the impact of compounding is lacking in a large portion of the population. In my state a state senator once claimed that since funding to the college system was increased 5% after a 5% decrease this meant that the college system’s funding had been fully restored. Do you understand why this indicates that the state senator doens’t understand percents? Do you see the error? Most people don’t.

There are lots of cases where borrowers do not understand all the terms of the loan. Have you read and understood every single loan document you’ve signed? I doubt it. Your belief that only the borrower actively seeks loans is can easily be dispelled by watching TV and seeing ads for loans.

It’s hard to understand how you can write

Borrowing money is the sole responsibility of the borrower...

And the write

The lender’s only role in the deal is to double-check the borrower’s assumptions to ensure the borrower is actually capable of keeping his word and pay back the money he is borrowing.

>the real culprit is always the government that does the borrowing and the spending

By that logic, I assume that in the case of the subprime crisis of 2008, you also think that the culprits are the indebted families, right? Not the banks that pushed loans on people who clearly couldn't afford them, who set up a system that richly rewarded them for that, that hoodwinked their clients and the public, that stacked regulators with friends to look the other way, that stacked universities with "economists" in conflict-of-interest to tout that their practices were a-ok, that paid themselves billions in bonuses with taxpayer money after the working class bailed out their losses... Not those people, right?

>It’s how socialism works. Spend other people’s money

It's always funny to me that the people who get trillion-dollar bailouts to recoup their losses and keep living an elite life of luxury have the gall to call others out on "handouts".

Anyway, you forgot to set that quote over a photo of Margaret Thatcher /s.

In some aspect, yes. Many of those small families overextended through getting greedy, and borrowed money they could never pay back.

As if the banks were forced to always say yes to whomever came knocking on their door.

Can we put this old troll from Thatcher to rest? It’s insulting

>It’s how socialism works. Spend other people’s money on handouts then blame capitalism for the public debt.

That's how an economically careless welfare state works in a capitalist economy. What you are describing is social democracy, which is not the same as socialism and never has been in the history of the movements or any terminology recognised by social scientists.

Socialism is direct worker control over the state and social means of production (to the point where Karl Marx considered the term synonymous to "Communism"), while social democracy is a liberal capitalist economy in which the government (which owns very little social means of production itself) funds welfare programs through taxes.

It worked out rather the other way around, though, did it not? Namely, the consequences of the risks taken by the big banks in pursuing aggressive lending policies were effectively socialized, while profits remained private. Even in the case of the large sovereign bailouts (most prominently Greece) most of the money went directly towards debt servicing and associated expenses, further socializing risks taken by private banks.

I'm not expressing any value judgment on these decisions in this post, but it seems to me the basic terminology is hard to dispute.

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