The crisis is not of Portugal’s doing. Its accumulated debt is well below the level of nations like Italy that have not been subject to such devastating assessments. Its budget deficit is lower than that of several other European countries and has been falling quickly as a result of government efforts.
And what of the country’s growth prospects, which analysts conventionally assume to be dismal? In the first quarter of 2010, before markets pushed the interest rates on Portuguese bonds upward, the country had one of the best rates of economic recovery in the European Union. On a number of measures — industrial orders, entrepreneurial innovation, high-school achievement and export growth — Portugal has matched or even outpaced its neighbors in Southern and even Western Europe.
Why, then, has Portugal’s debt been downgraded and its economy pushed to the brink? There are two possible explanations. One is ideological skepticism of Portugal’s mixed-economy model, with its publicly supported loans to small businesses, alongside a few big state-owned companies and a robust welfare state. Market fundamentalists detest the Keynesian-style interventions in areas from Portugal’s housing policy — which averted a bubble and preserved the availability of low-cost urban rentals — to its income assistance for the poor.
A lack of historical perspective is another explanation. Portuguese living standards increased greatly in the 25 years after the democratic revolution of April 1974. In the 1990s labor productivity increased rapidly, private enterprises deepened capital investment with help from the government, and parties from both the center-right and center-left supported increases in social spending. By the century’s end the country had one of Europe’s lowest unemployment rates.
robert m. fishman | the new york times