Skip to main content

Adjustment within the euro. The difficult case of Portugal

Abstract

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.

References

  • Banco Central de Chile (2004) Monetary policy report

  • Banco de Portugal (2004) Annual report

  • Bhide A (2006) Venturesome consumption, innovation and globalization. Mimeo Columbia, Center on Capitalism and Society

  • Blanchard O, Giavazzi F (2002) Current account deficits in the Euro area: the end of the Feldstein–Horioka puzzle? Brookings Pap Econ Act 2: 147–209

    Article  Google Scholar 

  • Blanchard O, Muet PA (1993) Competitiveness through disinflation: an assessment of the French macroeconomic strategy. Econ Policy 8(16): 12–56, April

    Article  Google Scholar 

  • Blanchard O, Portugal P (2001) What hides behind an unemployment rate. Comparing Portuguese and U.S. unemployment. Am Econ Rev 91(1): 187–207, March

    Article  Google Scholar 

  • Cabral S (2004) Recent evolution of Portuguese export market shares in the European Union. Banco de Portugal Economic Bulletin, pp 79–91, December

  • Cardoso A, Portugal P (2005) Contractual wages and the wage cushion under different bargaining settings. J Labor Econ 23: 875-902

    Article  Google Scholar 

  • Constâncio V (2005) European monetary integration and the Portuguese case. In: Detken C, Gaspar V and Noblet G (eds) The new EU member states; convergence and stability. European Central Bank, October

  • Dickens W, Goette L, Groshen E, Holden S, Messina J, Schweitzer M, Turunen J, Ward M (2005) The interaction of labor markets and inflation: analysis of micro-data from the international wage flexibility project. Mimeo, European Central Bank

  • Fagan G, Gaspar V (2005) Adjusting to the euro area: some issues inspired by the Portuguese experience. Mimeo, Banco de Portugal and European Central Bank, August

  • Francisco Dias F, Esteves P, Felix R (2004) Revisiting the NAIRU estimates for the Portuguese economy. Banco de Portugal Economic Bulletin, pp 39–48, June

  • Frankel J, Rose A (2002) An estimate of common currencies on trade and income. Q J Econ 117(2): 437–466

    Article  Google Scholar 

  • Gourinchas PO (2002) Comments on “current account deficits in the Euro area: the end of the Feldstein-Horioka puzzle?.” Brookings Pap Econ Act 2: 187–209

    Google Scholar 

  • McKinsey Global Institute (2003) Portugal 2010. Increasing productivity growth in Portugal. McKinsey Institute, Lisbon

    Google Scholar 

  • Rebelo S, Vegh C (1995) Real effects of exchange-based stabilization; an analysis of competing theories. In: Bernanke B and Rotemberg J (eds) NBER Macroeconomics Annual. MIT Press, Cambridge, pp 125–174

    Google Scholar 

  • Shleifer A, La Porta R, Lopez-de-Silanes F, Vishny R (1998) Law and finance. J Polit Econ 106: 1113–1155

    Article  Google Scholar 

  • Task force of the Monetary Policy Committee of the European System of Central Banks (2005) Competitiveness and the export performance of the euro area. Occasional paper series, European Central Bank, June

  • Tavares J (2004) Institutions and economic growth in Portugal: a quantitative exploration. Portuguese Economic Journal 3: 49–79

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

Authors

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.

Rights and permissions

This article is published under an open access license. Please check the 'Copyright Information' section either on this page or in the PDF for details of this license and what re-use is permitted. If your intended use exceeds what is permitted by the license or if you are unable to locate the licence and re-use information, please contact the Rights and Permissions team.

About this article

Cite this article

Blanchard, O. Adjustment within the euro. The difficult case of Portugal. Port. Econ. J. 6, 1–21 (2007). https://doi.org/10.1007/s10258-006-0015-4

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10258-006-0015-4

JEL Classification

  • E32
  • E65
  • F32
  • F41
  • J50

Keywords

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