Lecture by Isabel Horta Correia

Portugal in the 21st century: crisis and opportunities

Over the last few years, the Portuguese economy has faced a succession of shocks without precedent in recent history. Following full monetary integration and greater financial integration deriving from the introduction of the euro, coupled with structural constraints to economic growth, the Portuguese economy accumulated a series of macroeconomic imbalances leading to a high external deficit. The international economic and financial crisis and the subsequent sovereign debt crisis in the euro area hit the Portuguese economy in this context of particular vulnerability. The ensuing sudden stop of access to external funding in 2010 proved that a balance of payments crisis was a possibility within a monetary union.

In this context, pursuing a macroeconomic adjustment aimed at re-establishing the intertemporal sustainability of economic agent’s balance sheets became both inescapable and urgent. The evolution of the Portuguese economy over the last few years is representative of the mechanisms and possibilities of adjustment in a monetary union. The challenges and opportunities that Portugal is still facing should be evaluated to better understand the role of European institutions.

by Isabel Horta Correia, Ph.D. Head of Economics Research Department, Bank of Portugal and Full Professor of Economics, Catholic University in Lisbon