The view looking across Freedom Avenue, Lisbon

Sipping coffee outside a small café on Lisbon’s Freedom Avenue, it’s easy to forget that Portugal is a country in serious trouble.

It is, after all, a country of great history and architecture, incredible weather, and beautiful beaches. It is no wonder that an increasing number of Britons are opting to escape from the cold of the British Isles to visit the sunny Algarve. And yet, even brief conversations with the Lisbon locals reveals that Portugal is a bruised and brittle country. There is hope for the future but this is rarely matched with any real sense of optimism.

While meeting with people in Lisbon this week there was a clear sense that, while the country has been pulled back from the brink of disaster, it is not yet out of the danger zone. It is as if at any moment things might deteriorate once more. At Lisbon University, amid conversations about the financial crisis and the ensuing austerity policy, the most telling comment I heard was: “We’re not Greece…yet.” The inference was clear: yes things have been very bad, and in many respects they still are bad, but we’re not giving up; the future can still be bright.

The University of Lisbon is a fitting analogy of the Portuguese ability to adapt and to thrive by making the best out of what life throws at you. I was hosted by the Instituto Superior de Ciencias Sociais e Politicas (Institute for Political and Social Sciences); a school with a proud history, having taught its first lesson in 1906 in the presence of the then King Charles (whose demise thereafter signalled the end of the Portuguese monarchy). Today the university teaches more than 40,000 students spread across 18 separate schools including another of my hosts, the impressive Instituto de Direito Economico, Financeiro e Fiscal (Institute of Economic, Financial and Fiscal Law).

But while the university offers Portugal’s young the opportunity to learn and develop, the biggest problem facing graduates is the distinct lack of opportunities once they leave. Portugal has an unemployment problem. Moreover it has a youth unemployment problem. The national unemployment rate currently stands at a little over 15% (having come down from a high of nearly 18% a year ago), while youth unemployment stands at a depressing 35%.

I spoke to Alice Trindade, Vice President of the Institute for Political and Social Sciences who spoke of her worry that the talented graduates she sees passing through her classes will have no other option than to search for work outside of Portugal. And who could blame them? Even Portugal’s President Pedro Passos Coelho has encouraged young people in his country to move away from Portugal to find work. While President Coelho’s controversial words may be seen by some as sensible advice for job seekers, as a long-term economic policy it leaves much to be desired.

Proving the maxim that attitude reflects leadership, Portuguese people seem to share their President’s pessimism. Perhaps the most stark reflection of the dire employment situation in Portugal is the mere 7% of citizens who believe that it is a good time to find a job. In Germany, that number is 51%. Further, when asked about their satisfaction with living standards, only 54% of Portuguese citizens respond positively (compared to 82% in the UK).

Attitudes towards the government are equally negative. Government approval dropped from 41% in 2010 to 26% in 2013, which, although low, is unsurprising given the level of dissent over the government’s austerity policies. And it’s not just opposition to policies that’s fuelling the protests. There is a strongly held view in Portugal that government is corrupt. When polled, a staggering 91% of Portuguese people believed corruption to be widespread in government and business. To put that into perspective, that’s the highest percentage in the world on this measure, higher than Zimbabwe (78%), Russia (79%), and Nigeria (87%).

And so what next for Europe’s westernmost country? There are some statistics that are moving in the right direction for Portugal. Measures of entrepreneurship have improved in recent years with business start-up costs falling to 2.3% of GNI (down from 7%). On top of that, a number of social indicators have seen positive changes in the last four years: volunteerism is up by 5%, donations to charity have increased by 12%, and those reporting to having helped a stranger has increased by 13%.

Perhaps these strong social ties are an unintended consequence of the crisis, having caused people to come together to survive tough times. Whatever the reason, Portugal’s social fabric seems to be strong despite difficult national challenges. And that, at least, provides a small ray of optimism for a country in need of some good news.

This post first appeared on the Legatum Institute blog. 

Notes:

• Most of the data used in this post is taken from the 2013 Legatum Prosperity Index™.
• A country profile of Portugal can be found here.
• A more detailed briefing about Portugal can be found here.