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Adjustment within the euro. The difficult case of Portugal


In the second half of the 1990s, the prospect of entry in the euro led to an output boom and large current account deficits in Portugal. Since then, the boom has turned into a slump. Current account deficits are still large, and so are budget deficits. This paper reviews the facts, the likely adjustment in the absence of major policy changes, and examines policy options.


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Corresponding author

Correspondence to Olivier Blanchard.

Additional information

I thank João Amador, Miguel Beleza, Ricardo Caballero, Vitor Constâncio, Ricardo Faini, Francesco Franco, Francesco Giavazzi, Vitor Gaspar, Ricardo Hausmann, Raoul Galamba de Oliveira, Juan Francisco Jimeno, Abel Mateus, Fernando Teixeira dos Santos, Sergio Rebelo, Charles Wyplosz, the editor and the referees, for discussions and comments. I thank Lionel Fontagné, Pedro Portugal, and the research department at the Bank of Portugal, for data and other information. I especially thank Marta Abreu for her help throughout this project.

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Blanchard, O. Adjustment within the euro. The difficult case of Portugal. Port. Econ. J. 6, 1–21 (2007).

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JEL Classification

  • E32
  • E65
  • F32
  • F41
  • J50


  • Common currency
  • Euro
  • Appreciation
  • Depreciation
  • Competitiveness
  • Current account deficit
  • Expansion
  • Recession
  • Portugal
  • Productivity growth