Is it a financial crisis? Maybe not, it is rather a crisis of sound leadership

The budget preparation and submission for the parliament approval is a test on the political influence. George Osborne, the Chancellor of the Exchequer of the UK passed the challenge on Wednesday, however, José Sócrates the Prime Minister of Portugal resigned after the parliament’s rejection of the austerity plan.

A burden of rising debts and a threat of insolvency force Europe to undertake budget deficit reduction measures and perhaps most importantly, to seek for the effective means to stimulate the recovery of the economy. As practice shows the political intentions to achieve the financial balance by increasing tax burden for corporations and individuals as well as the political commitments to protect and satisfy the essential needs of the increased socially vulnerable community, weaken states incomes and financial reserves. Consequently, that kind of policy deepens recession. In fact, political concentration on the solutions to ease the barriers of trade and production, to support business competitiveness and even small changes in tax reduction are welcomed by entrepreneurs and investors.

According to Osborne’s unveiled budget, politicians committed to reduce the costs of public sector and social support. Instead, they obliged themselves to create 21 new enterprise zones and apply specific measures to support businesses and high value manufacturing within those zones. At the same time presented similar public cost-cutting measures by Sócrates were opposed. Thus, political uncertainty, high yields on Portuguese bonds and a threat of insolvency, will foster Portugal to seek a bail out from EU and the IMF.

So, is it a financial crisis Portugal has to tackle? I do not think so. It is rather a crisis of leadership. If the budget was presented not as a plan of changed taxes and budget allocation in percentage terms but as an action plan of the development strategy it would be easier to gain political credibility and achieve support by the majority.