The Global Financial Crisis and its Budget Impacts in OECD Nations Fiscal Responses and Future Challenges
Fiscal Responses and Future Challenges
Edited by John Wanna, Evert A. Lindquist and Jouke de Vries
Chapter 9: Portugal and the global financial crisis: short-sighted politics, deteriorating public finances and the bailout imperative
In April 2011 Portugal became the third country in a row, after Greece and Ireland, to receive a bailout from the ‘Troika’ of the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). Financial markets began to become suspicious about the ability of the country to fulfill its sovereign debt liabilities, risk premiums increased up to a point where access to capital markets was no longer an option, and a debt default soon became imminent. At this point the Portuguese minority Socialist government of Jose Socrates had no option other than to negotiate a bailout in the form of a memorandum of understanding with the Troika lending consortium. The natural question is: Why did Portugal suffer this fate? This chapter aims to explain the political and institutional foundations that led to this bailout by exploring two key dimensions: the democratic features of Portuguese governments, and their fiscal policy settings shaped within the context of the European Union’s (EU) budgetary framework. Firstly, the chapter examines the long-run trends in the management of Portugal’s public finances. Secondly, it explores the economic and fiscal situation before the crisis emerged.
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