Portugal: four years later (Interview with Greek newspaper “To Vima”)

by Luis Cabral

1. It’s been four years since Portugal asked for a 78 billion bail out and one year since it exited the program. What in your opinion did Portugal gain and what did it lose from this decision?

Although many mistakes were made by the current government, the overall balance of the Portuguese bailout program is clearly positive: by quietly renegotiating interest rate and repayment terms with the troika, Portugal effectively earned the equivalent of a 20 to 25 percent “haircut” without any of the reputation costs of a bailout based on default. This is not to say that there were no costs: fiscal consolidation came at the worst possible time, leading to wage cuts, hight unemployment rates, and a very slow recovery from the great recession.

2. Can we say that today Portugal’s economy is more stable or vulnerable and why?

The deep and protracted economic crisis had a deep social impact, which is being felt in terms of higher levels of inequality and poverty and increased social tension. At the same time, fundamental structural reform is taking place that will hopefully provide for a new era of economic development. In other words, when we look back to the past 4 years or so we will judge this period as one of the worst economic crisis ever but also as a turning point in the country’s economic growth trajectory.