The Portuguese Welfare System in a Time of Crisis and Fiscal Austerity

The purpose of this chapter is to provide an overview of the main challenges and risks the Portuguese welfare system has faced since the onset of the financial crisis of 2008, and of the reforms that have been implemented, particularly after the signature of the Memorandum of Understanding (MoU), in May 2011, with the European Commission, the European Central Bank and the International Monetary Fund.

First, we examine demographic trends in Portugal, often mentioned as a primary challenge to economic policy that calls for social security reform, emphasizing their relationship with the working of the economy and social policy. Next, we discuss the diagnosis of the present crisis adopted by the European Union institutions, which considers that the public debt crisis was the outcome of government fiscal indiscipline and current account imbalances were due to “structural rigidities”. This diagnosis has helped to legitimate fiscal consolidation and “internal devaluation” policies imposed on Portugal and on other peripheral countries of the Eurozone. We argue that the origin of the present crisis is better explained by macroeconomic imbalances prevailing within the Eurozone. Then, we outline the adverse consequences of austerity policies pursued as regards the functioning of the economy, the aggravation of demographic trends, the financial imbalances of social security, and the shaping of social policy. Finally, we analyze with more detail the main challenges, risks and policy responses undertaken in the period under analysis in the fields of labour market, pensions, health, long-term care, family and children.