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Portugal and the Global Financial Crisis – short-sighted politics, deteriorating public finances and the bailout imperative

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  • Paulo T. Pereira,
  • Lara Wemans,
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    Abstract

    The aim of this paper is twofold. On the one hand to explain the institutional, economic and political foundations of the Portuguese bailout in April 2011. On the other hand, to clarify the impact of the global financial crisis (GFC) in Portuguese public finances, and the interaction between domestic fiscal policy and monitoring and recommendations from the European Commission (EC) and the European Council (ECo). A long run perspective (1974-2011) on management of public finances shows that Portugal has some institutional and constitutional problems that should be sorted out in order to achieve sound public finances. Moreover, in the second half of the 90s fiscal policy was expansionary and the high conversion rate of the former currency (escudo) to the euro still hampers economic growth and competitiveness. With weak growth in the first decade of XXI century and persistent public and external deficits, Portugal came to the frontline of the negative impacts of the GFC. The total absence of political cooperation and the existence of some minority governments only made things worst. We conclude, with a brief overview of the bailout, its prospects of success, and some structural institutional measures that should be taken.

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    File URL: http://pascal.iseg.utl.pt/~depeco/wp/wp262012.pdf
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    Bibliographic Info

    Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2012/26.

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    Date of creation: Jul 2012
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    Handle: RePEc:ise:isegwp:wp262012

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    Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
    Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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    Keywords: H30; H50; H60;

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    1. Paulo Trigo Pereira & João Andrade e Silva, 2007. "Citizens’ Freedom to Choose Representatives: Ballot Structure, Proportionality and “Fragmented” Parliaments," Working Papers Department of Economics 2007/13, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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