Portugal Is Not Greece: Policy Responses to the Sovereign Debt Crisis and the Consequences for the Portuguese Political Economy

Abstract

This paper delineates the changing environment from a benevolent to a conditionalityoriented. It uses the case study of Portugal and the implementation of the austerity programme to show how a semi-peripheral country of the European Union (EU) reacted to this changed environment. The first section shows how the EU has become more divided due to the growing cleavage between rich and poor member states. This is followed by the section on the making of the growing tensions between the European partners and the International Monetary Fund. Subsequently, the semi-peripheral economy of Portugal is analysed, before the policy responses of the Portuguese government are presented.

The Effects of Crises and European Fiscal Governance Reforms on the Budgetary Processes of Member States

“…The memorandum of understanding signed with the Troika in May 2011 entailed a comprehensive reform programme, which also foresaw changes to budgetary institutions. The Portuguese government sought to avoid a second bailout and managed to exit the adjustment programme in 2014 (Magone, ).…”

Portugal

“…Thus, the collapse of the Passos Coelho government was averted. A major reshuffle took place so the government could be better equipped to continue to implement the austerity measures package (Magone 2013b; 2014b).…”

“…It was estimated that this would lead to a potential shortfall of €419 million. The markets reacted with an increase to 6.98 per cent in interest rates for ten‐year sovereign bonds (Magone ).…”

“…This was also advised by President Cavaco Silva, who is an eminent economist. However, the government hoped to return to the markets without such a precautionary programme (Magone ).…”

“…This breached principles of trust and protection guaranteed by the constitution. The government therefore had to deal with a shortfall of €388 million (Magone ).…”