Portugal Should Not Be the EU’s Biggest Concern

I was about half way done with a post on Greece before I realized Christian had also posted on the same country. So I decided to shift my focus to another EU nation that has been struggling economically as of late, Portugal. Much like other countries around the world and in the European Union, Portugal was hit hard by the global recession. 2008 marked the first year in which the country’s GDP contracted since World War II. After seeing negative GDP growth in 2009 as well, European countries began to question Portugal’s economic strength and wondered whether the country would begin to jeopardize the EU like Greece and Spain have done in the last few years.

Similarly to these two nations, Portugal’s national deficit exceeds the limit imposed by the EU on its member states. The EU requires that its members have deficits no greater than 3% of their GDP. Portugal’s deficit was three times greater than the limit in 2009, reaching 9.3% of its GDP. As recently as early February of this year, some members of the European Commission, one of the EU’s ruling bodies, told the media that Portugal, Greece, and Spain have all permanently lost their competitiveness and were threating the existence of the monetary union.

However, many people including Portugal’s Prime Minister Jose Socrates, believe that Portugal is in a much better situation than Greece or Spain. This view is backed by a recent report that stated that Portugal’s GDP growth has turned around and will be positive in 2010. Although this GDP growth will be much smaller than that of the EU’s stronger economic nations, it is a positive sign for a nation that has struggled to make it through the recession.

Portugal’s public finances deteriorated in 2008 and 2009 from a lack of tax revenues and a number of expenses that included unemployment subsidies and economic stimulus packages. However unlike Greece and Spain, Portugal’s deficit has resulted from a lack of these tax revenues and not from an increase in expenditures. Although the country still struggles to compete with wealthier and stronger nations within the EU like France and Germany, Portugal has put a solid plan in place for the future.

The country’s unemployment levels are below the EU average and have started to drop heading into 2010. In addition, the budget deficit has peaked and will be controlled with increased tax revenues that result from a stronger global economy. Finally and most importantly, Portugal still has the credibility that Greece has lost. The nation has persevered from hard economic times before and has a solid track record. In recent years, Portugal has reduced its public sector, increased its retirement age, restructured its social security programs, and instituted online systems that citizens can use to submit taxes. This is a stark contrast from Greece, which lost over 30 billion Euro alone in 2009 from tax evading businesses. Portugal seems to be on the right track and is definitely not the EU’s biggest problem. It will be interesting to see where the country stands at the end of 2010.

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2 Responses

  1. Sorry to steal Greece from you….I do agree that Portugal should not be as big of a concern as Greece or Spain….purely from a public debt standpoint there are several countries in the EU that have higher amounts of debt as a % of GDP than Portugal. This is worrisome in an environment where revenues are falling and expenditures are not. Govts will have a difficult time servicing their debt payments unless expenditures are cut significantly. Check out the CIA fact book on debt rankings:

    https://www.cia.gov/library/publications/the-world-factbook/rankorder/2186rank.html?countryName=Portugal&countryCode=po&regionCode=eu&rank=18#po

  2. I love all the embedded links to articles you used to write this post. It adds great backing to your argument and context towards the overall theme of the post. Well done. The only question I had after reading your post is why did Portugal have such a tough time collecting taxes? As a government, shouldn’t this be a top priority?

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