Portugal, at one point one of Europe’s economic basket cases, last week announced its departure from a three-year bailout that appears to have restored its health.
In the wake of the global recession that began in 2008, which the United States played a key role in starting, European countries including Greece, Greek Cyprus, Ireland, Italy, Portugal and Spain showed serious signs of the same financial disease. Budget imbalances were high, borrowing was possible only at high rates and, worst of all, unemployment reached levels that made America’s own seem mild.
Portugal’s woes were severe. Unemployment hit 17.7 percent. The country sought and received $108 billion in loans from the European Central Bank, the European Commission and the International Monetary Fund in 2011. Facing up to its situation and wishing to regain the autonomy that comes from a healthy economy, a new center-right coalition government in Lisbon headed by Prime Minister Pedro Passos Coelho took drastic, but necessary, steps.
It made spending cuts, including to public employee wages and pensions. It raised taxes. It cut Portugal’s budget deficit in half. Exports increased, as did the health of its private enterprises, and consumption rose, lifting all boats. To test the financial waters it floated a bond offering. The bonds sold, at a low 3.575 percent interest rate. Economic growth for the next two years is now forecast to top 1 percent each year.
In leaving the bailout program, Portugal did not ask for a precautionary line of credit to serve as a safety net, underlining its desire to once again be responsible for its own finances. Needless to say, it is not interested in new military adventures in Eastern Europe, through NATO or the European Union, even though it has little trade with Russia or Ukraine.