Boom, Slump, Sudden Stops, Recovery, and Policy Options: Portugal and the Euro
Over the past 20 years, Portugal has gone through a boom, a slump, a sudden stop, and now a timid recovery. Unemployment has decreased, but remains high, and output is still far below potential. Competitiveness has improved, but more is needed to keep the current account in check as the economy recovers. Private and public debt are high, both legacies of the boom, the slump and the sudden stop. Productivity growth remains low. Because of high debt and low growth, the recovery remains fragile. We review the history and the main mechanisms at work. We then review a number of policy options, from fiscal consolidation to fiscal expansion, cleaning up of non-performing loans, labor market reforms, product market reforms, and euro exit. We argue that at this point, the main focus of macroeconomic policy should be twofold. The first is the treatment of non- performing loans, which would allow for an increase in demand in the short run and an increase in supply in the medium run. We argue that, to the extent that such treatment requires recapitalization, it makes sense to finance it through an increased fiscal deficit, even in the face of high public debt. The second is product market reforms, and reforms aimed at increasing micro-flexibility in the labor market. Symmetrically, we also argue that at this point, some policies would be undesirable, among them faster fiscal consolidation, measures aimed at decreasing nominal wages and prices, and euro exit.
|Date of creation:||Aug 2017|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Olivier Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010.
"Rethinking Macroeconomic Policy,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 42(s1), pages 199-215, 09.
- Olivier J Blanchard & Giovanni Dell'Ariccia & Paolo Mauro, 2010. "Rethinking Macroeconomic Policy," IMF Staff Position Notes 2010/03, International Monetary Fund.
- Ricardo Reis, 2015. "Looking for a Success in the Euro Crisis Adjustment Programs: The Case of Portugal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 433-458.
- Reis, Ricardo, 2015. "Looking for a success in the euro crisis adjustment programs: the case of Portugal," CEPR Discussion Papers 10972, C.E.P.R. Discussion Papers.
- Ricardo Reis, 2015. "Looking for a success in the euro crisis adjustment programs: the case of Portugal," Discussion Papers 1535, Centre for Macroeconomics (CFM).
- Ricardo Reis, 2015. "Looking for a success in the euro crisisadjustment programs: the case of Portugal," LSE Research Online Documents on Economics 64488, London School of Economics and Political Science, LSE Library.
- Andrea Bassanini & Stefano Scarpetta & Philip Hemmings, 2001. "Economic Growth: The Role of Policies and Institutions: Panel Data. Evidence from OECD Countries," OECD Economics Department Working Papers 283, OECD Publishing.
- Ricardo Reis, 2015. "Looking for a success: the euro crisis adjustment programs," LSE Research Online Documents on Economics 65868, London School of Economics and Political Science, LSE Library.
- Olivier Blanchard, 2007. "Adjustment within the euro. The difficult case of Portugal," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 6(1), pages 1-21, April.
- Mário Centeno & Cláudia Duarte & Álvaro A. Novo, 2011. "The impact of the minimum wage on low-wage earners," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
- Vansteenkiste, Isabel, 2017. "Did the crisis permanently scar the Portuguese labour market? Evidence from a Markov-switching Beveridge curve analysis," Working Paper Series 2043, European Central Bank.
- Paulo Esteves & António Rua, 2015. "Is there a role for domestic demand pressure on export performance?," Empirical Economics, Springer, vol. 49(4), pages 1173-1189, December.
- Paulo Soares Esteves & António Rua, 2013. "Is there a role for domestic demand pressure on export performance?," Working Papers w201303, Banco de Portugal, Economics and Research Department.
- Rua, António & Soares Esteves, Paulo, 2013. "Is there a role for domestic demand pressure on export performance?," Working Paper Series 1594, European Central Bank.
When requesting a correction, please mention this item's handle: RePEc:iza:izapps:pp131. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)
If references are entirely missing, you can add them using this form.