Portugal’s Cassandra

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Antonio de Sousa
The timing could not have been worse for Portugal's governing socialist party. A month ahead of the elections, when it is already lagging behind in the polls, the EU slaps it on the wrist over public spending, an issue central to both parties' campaigns.

It will come as no surprise to Antonio de Sousa, who was the governor of Portugal's central bank between 1994 and 2000 before becoming president of Caixa Geral de Depositos. De Sousa can sit back and relax in the knowledge that he said "I told you so".

De Sousa says the warning was timely and that the spending model that the government was following was already reaching its limits by the end of 1998. "That is what created the situation in 2000/2001," he says. "It is not possible to continue to spend without limits." Instead, the government should have improved tax efficiency back in 1995, and it can still do more to improve it now.

The problems started with the slack that was created by Portugal's capacity to join EMU, when public debt was slashed as a proportion of GDP. "That is normal slack that you can use," says de Sousa, "but the government used it for social expenses. As governor I always said that was a political choice. You have to be aware that you have a period to use that slack and then you have to change. That was my position at the time, and it is still my position now."