Algarve Letters

First Detroit, Then Lisbon

I have just returned from a lengthy trip around the UK. I stayed in hotels, but I was never quite sure which country I was in. It was like touring round Europe.

A knock at the door, I open it and say something in English, the girl looks confused. I try Spanish, then French, then Italian, and at last she smiles. Pity my Italian is not much good. Later I arrive back after a trip, and another member of staff hassles me as I park. We aren't communicating so I try Spanish, and that works quite well. No, I am not parking and going to the airport, I am staying at the hotel.

The next day I think the language I should be speaking is Serbo-Croat, but I only know about six words in that language, but we get by somehow.

This pattern of being served, helped, and generally confused by those seeking to do their job, continues throughout my stay. Even the rental car office at Stansted is manned by a Pole.

The stats tell me that the largest non-Brit population in the UK is Polish, but there is a hefty mob of Italians, Spaniards. Portuguese, Greeks and Cypriots. It seems as if the populations of the bombed-out economies in Southern Europe are flooding north in droves.

This mass exodus of workers reminds me of something I investigated five or six years ago in the US. There were office blocks thirty and forty storeys high for sale for silly money in Detroit. I thought it had to be a great deal, and I investigated whether one could get planning changes to turn these monsters into housing units. The real problem though was; where the heck were the customers to come from?

No worries, I was told, Washington is pumping in money in the form of grants, and so they were. However, whenever the funding is coming from the government one can guarantee that it isn't going to get results.

I ended up getting cold feet and left town. The money flowed on, and then suddenly stopped. It's been stopped for some time now, and Detroit has just filed for bankruptcy.

I was asked by my clients whether they should invest in Detroit, and I told them I was scared, so I would not recommend. That was clearly the right decision.

Detroit has been quietly going bust for fifty years, ever since the motor industry started its decline. The city used to be home to two million inhabitants. Now it's not much over half a million. That's a hell of a lot of empty space. Now those on the city payroll are unlikely to get their next pay cheque. The police force has been cut by 40%. No worries, the murder rate is down 14%. "There just isn't anyone left to kill" says the mayor. On the other hand, there's plenty of livestock about. The rats are booming, and the wild boar have moved in, and so have the pheasants.

This is the picture of a city state in collapse; work gone, workers going, debt through the roof, government aid grinding to a halt, services vanishing, and parts of the city gone completely wild.

Are we heading the same way here in Portugal? Spain, Portugal, Greece; the work is disappearing, and so are the workers. They are heading north to London and Paris, and the service industries in the UK are stuffed with them.

Lisbon cant print money to keep afloat. That was how it used to survive. Let me remind you that Portugal has never been solvent in modern times. It was bust in the eighteenth century, bust in the nineteenth century, and bust in the twentieth century. When I first landed in Lisbon in the sixties there were 60 escudos to the £. When the euro floated forty years later there were 315. That's some depreciation. That's how it's always been. If the debts cant get paid, the state bank prints more currency, and the currency is devalued. Now the Bank of Portugal cant do that, so the government has been doing the modern thing; borrowing money. It is now borrowing money to pay back loans, and, worse still, borrowing to pay the interest on the loans. There is only one way it can go: BUST.

The US government one day stopped funding Detroit. One day soon Germany will stop funding Portugal and Greece. I still think the Spanish economy is big enough to survive, albeit in a shaky form, but Portugal and Greece are not economically viable states, and neither country has the governmental will and ability to get out of the mess. Here in Portugal the ministers are running around like headless chickens, and they are still stealing from the country's coffers.

The big problem for Portugal is that it has nothing to offer. It has no expanding industries, it has a small workforce, which is largely unskilled, and the output per worker is very low. Incentive is on the floor, and wages are going down, and there is no plan for survival let alone expansion. Any more money poured into Portugal will simply disappear down a black hole.

There are only two real scenarios. 1: the government goes bust and falls, and Portugal goes into total financial chaos. 2: the government exits the eurozone and prints their way out of trouble and that leads to massive inflation, and that means the money in your pocket and in your pension isn't worth anywhere near as much as it was. Either way it leads to penury.

It's dangerous living in a country run by a desperate government. Under such conditions the government is your biggest enemy, and you become a target. That is what we are seeing right now.

john