Sócrates resigns and Portugal heads for a bailout: 23 March 2011

On Wednesday 23 March 2011 the deputies of the Assembleia da República, Portugal's parliament, met in the Palácio de São Bento in Lisbon to vote on the government's latest plan for the public finances. Officially it was the Stability and Growth Programme for 2011 to 2014. Everyone called it PEC IV, the fourth austerity package in a year.3 sources3 sources

José Sócrates, the Socialist prime minister, had warned that he would resign if it was rejected. His Socialist Party (PS) held 97 of the 230 seats. All five opposition parties, from the centre-right Social Democrats (PSD) and the conservative CDS-PP to the Left Bloc, the Communists and the Greens, voted for resolutions rejecting the plan.3 sources3 sources

That evening Sócrates went to the Palácio de Belém and spent about 20 minutes with President Aníbal Cavaco Silva. Back at São Bento, he told the country that he had resigned.3 sources3 sources

He said the crisis had come at the worst possible moment and blamed the opposition's impatience for power. Outside help, he warned, would bring much harsher measures than his own plan. Fifteen days later his caretaker government asked the European Union and the International Monetary Fund (IMF) for a loan. It came to €78 billion, and its conditions governed Portugal's economic policy until 2014.4 sources4 sources

Portugal's trouble was older than the global crash. The IMF's staff summed it up in 2011: growth had averaged only 1 per cent a year since 2000, wages had outpaced the euro-area average while productivity growth slowed, the current account deficit was still close to 10 per cent of GDP in 2010, and public debt had climbed from about 48 per cent of GDP in 2000 to 93 per cent in 2010. Banks and companies were heavily in debt too, much of it owed abroad.1 source1 source

The financial crisis of 2008 made it worse. The budget deficit reached about 10 per cent of GDP in 2009, and in December that year the EU Council told Portugal to bring it back below 3 per cent by 2013. During 2010 lenders began to doubt that it could, and Greece and Ireland had already needed rescues. The state's borrowing costs climbed to the highest levels since the euro began, and banks lost access to the wholesale markets they relied on.3 sources3 sources

Sócrates, prime minister since 2005, had come first again in the election of 27 September 2009, with 36.6 per cent of the vote and 97 seats, short of the 116 needed for a majority. He governed alone, so every budget needed another party's votes or abstention, in practice those of the PSD.4 sources4 sources

The March 2010 update of the PEC set out a path back to a 3 per cent deficit by 2013. It did not calm the markets. In May 2010 the government brought its targets forward, aiming at 7.3 per cent of GDP for 2010 and 4.6 per cent for 2011, and raised taxes from the middle of the year. The PSD, under Pedro Passos Coelho, negotiated the package with the government.4 sources4 sources

On 29 September 2010 came the third. Public-sector pay above €1,500 a month would be cut on a sliding scale, from 3.5 per cent at the bottom to 10 per cent at the top, for an average cut of 5 per cent. Pensions, promotions and hiring were frozen, the standard rate of VAT rose from 21 to 23 per cent, and child benefit and the minimum income scheme were cut back. The measures went into the 2011 budget, which passed in November 2010 because the PSD abstained.4 sources4 sources

On 11 March 2011 the government sent the European Commission and the European Central Bank (ECB) a note promising more, and both welcomed it. It became PEC IV: extra savings worth 0.8 per cent of GDP in 2011, mostly spending cuts in health, state companies, social security and other public bodies; a two-year suspension of the rule that raised pensions each year, with a small rise kept for the lowest; a solidarity levy on pensions above €1,500; and a review of tax breaks and VAT rates for 2012 and 2013.2 sources2 sources

The opposition said it had been ignored. Sócrates met Passos Coelho once before the plan went to Brussels and did not discuss it with the President beforehand. The political scientist Pedro Magalhães noted at the time that the PSD's best poll ratings in years, and pressure inside the party for an early election, also pushed Passos Coelho towards a no.2 sources2 sources

The street was restless too. On 12 March, the day after the note went to Brussels, a rally called on social media by four citizens under the name Geração à Rasca, roughly the generation in a fix, marched in Lisbon against job insecurity and austerity. By then Passos Coelho had made clear that the PSD would back no more austerity measures.2 sources2 sources

On 23 March the opposition's resolutions rejecting PEC IV were carried by the votes of all five opposition parties. The Socialists voted alone. The PSD said the measures hit the weakest hardest, and the government warned that without them Portugal would be pushed closer to a bailout.2 sources2 sources

In his statement that evening Sócrates said the political crisis could be settled only by the sovereign decision of the Portuguese, a call for an election. He would stay on at the head of a caretaker government. The next day EU leaders were due to meet in Brussels for a summit on the debt crisis.2 sources2 sources

The two big parties kept their stories for years. The Socialists blamed contagion from Greece, unregulated financial markets and unfair rating downgrades, and said Passos Coelho had thrown the country into the hands of the IMF. The PSD said the Socialists had lost all credibility, and once the bailout terms were agreed it claimed that the opposition had helped make them better for the Portuguese.3 sources3 sources

The parties to the left of the PS rejected both PEC IV and outside help. On 6 April the Left Bloc's leader, Francisco Louçã, blamed the banks for withdrawing support from a state that had helped them, and argued that IMF remedies would not solve the crisis. The Communists called for the debt to be renegotiated and later described the memorandum signed by the PS, PSD and CDS as a pact of aggression.3 sources3 sources

Lenders drew their own conclusions. IMF staff wrote that after the resignation and the call for elections Portugal's access to external markets had been virtually closed. Moody's cut the state's rating on 5 April, and then the ratings of several banks and public companies.2 sources2 sources

On 6 April the Treasury sold about €1 billion of six- and twelve-month bills, at rates above 5 per cent. Late that afternoon the finance minister, Fernando Teixeira dos Santos, told the business daily Jornal de Negócios that the country had to turn to the European financing mechanisms at once. That evening Sócrates spoke to the nation.2 sources2 sources

He blamed the vote of 23 March, calling the rejection of the PEC the wrong signal at the wrong moment, and said he had always seen outside help as a last resort. In Brussels the Commission's president, José Manuel Durão Barroso, promised to deal with the request as fast as possible.1 source1 source

A joint mission of the European Commission, the ECB and the IMF, soon known simply as the troika, began talks in Lisbon on 11 April. The caretaker government negotiated. The troika also met the opposition: the PSD sent a team led by Eduardo Catroga, while the Communists and the Left Bloc refused to sit down with it.2 sources2 sources

A technical agreement was reached on 3 May. On 17 May EU and euro-area finance ministers approved the programme, the date the Commission's 2011 report gives for the signing of the memorandum of understanding. The IMF board approved its share on 20 May and the EU Council on 30 May. The PSD and the CDS-PP wrote to the troika committing themselves to the targets, while asking for room to change some measures after the election.4 sources4 sources

The deficit targets were loosened to 5.9 per cent of GDP for 2011, 4.6 per cent for 2012 and 3 per cent for 2013, but the effort over three years came to around 10 per cent of GDP. Two thirds was to come from spending: pay and promotion freezes, fewer public employees, pensions frozen except the lowest, a levy on pensions above €1,500, and shorter, smaller unemployment benefits. Taxes on consumption rose. Labour law, the courts, rents, energy and transport were all to be reformed.1 source1 source

Sócrates said the deal avoided the measures people feared most, and Catroga claimed the PSD had shaped it. Observador's later fact-check found that the government ran the talks with very little influence from the opposition, and that the memorandum held little more austerity than PEC IV.2 sources2 sources

The campaign was fought over blame. Nearly 80 per cent of voters rated the government's performance as bad or very bad, yet fewer than half blamed the PS for the need for foreign help, and the PSD's lead in the polls, never more than about 10 points on average, shrank after the request for help.1 source1 source

The PSD won 108 seats and, with the CDS-PP's 24, had a majority. The Left Bloc lost half its seats. That night Sócrates resigned as leader of the PS. On 21 June he handed over the prime minister's office to Passos Coelho, whose coalition with the CDS-PP would carry out the programme.4 sources4 sources

The new government's 2012 budget suspended the holiday and Christmas payments, the 13th and 14th monthly salaries that are part of Portuguese pay, for public employees and pensioners on more than €1,100 a month, and cut them for those on €600 to €1,100. On 5 July 2012 the Constitutional Court ruled that this broke the principle of equality, because it loaded the cost on people paid from public funds. To protect the state's finances it let the cuts stand for 2012.2 sources2 sources

Later rulings in 2013 and 2014 struck down other cuts to pay and pensions. The Commission's own review in 2016 listed them, with a weaker economy than forecast, among the reasons the deficit targets had to be revised twice.1 source1 source

Unemployment rose from 12.6 per cent in 2010 to a peak in 2013: 16.4 per cent in the figures available when the programme ended, 17.2 per cent in Eurostat's current, revised series. Among young people it reached 38.1 per cent. About 150,000 people left Portugal for a year or more between 2011 and 2013, and the Commission called that emigration a hidden cost of the crisis.2 sources2 sources

Protest grew. On 7 September 2012 Passos Coelho announced a rise in workers' social security contributions matched by a cut for employers. On 15 September demonstrations under the slogan Que se lixe a troika, roughly to hell with the troika, took place in 42 towns and cities, according to an account by one of the activists involved.1 source1 source

The programme ran its course. Helped by calmer markets after decisions by the monetary authorities, Portugal was back selling bonds before the end and built up a cash buffer of €15.6 billion. The programme ended in June 2014 (the Commission's evaluation also gives May), and Portugal left without drawing the last €2.5 billion tranche and without asking for a precautionary credit line. The Commission's evaluation also found that the easing pressure slowed reforms, and that cuts to pay and pensions had mostly been temporary.2 sources2 sources

The argument over 23 March has outlived both leaders' governments. Observador's fact-checkers rated as misleading a Socialist claim that the PSD had brought in the bailout: Portugal's borrowing conditions had been tightening since mid-2010, and most economists doubted that PEC IV would have brought yields down far enough. Writing in May 2011, the political scientist Pedro Magalhães judged that a rescue would have been needed at some point whether or not the package passed.2 sources2 sources

In 2015 the same fact-checkers rated as misleading the claim that Passos Coelho had wanted the troika: the PSD supported the request, but it was not the PSD's initiative. They added that the Socialists had some grounds for arguing that the rejection of PEC IV precipitated the bailout, since the government's fall set off the downgrades and the rise in borrowing costs that followed.2 sources2 sources

The loans are still being repaid. From 2015, when market borrowing became cheaper than the IMF's loans, Portugal began repaying the IMF early, with the euro-area governments' consent. The European loans run for decades, and Portugal stays under the Commission's post-programme surveillance until it has repaid 75 per cent of them, which is expected around 2035.2 sources2 sources

Public debt, 132.5 per cent of GDP in 2014, fell to 89.7 per cent in 2025, and the budget has been in surplus since 2023. Unemployment, 17.2 per cent at its peak in Eurostat's series, was 6.0 per cent in 2025.2 sources2 sources