Life after the MoU, Rúben Branco

On January 16, 2013, in one of the first public speeches clearly addressing the “after-Memorandum era”, the Portuguese Prime-Minister underlined the importance of maintaining public fiscal discipline after the end of the financial assistance program by the IMF, ECB and EC.

Mr. Passos Coelho linked this need for continued fiscal discipline to the goal of complying with the EU ceiling of 60% on the debt-to-GDP ratio. The Head of Government could hardly be clearer: “If we wish to reduce debt, we can generate budget surpluses…”[1]. I would say more: If we wish to reduce debt, we must generate budget surpluses.

This comes as no surprise, given that the crisis Portugal is facing has its roots in an excessive public debt accumulation. But the needed structural shift towards a fiscal discipline profile in Portuguese public finance may be equally ground-breaking: since the birth of its democracy in 1974, the Portuguese State never run a budget surplus (see the figure below).

grafico rubenNotes: Data refers to Public Administrations’ Financing Financing Capability(+)/Need(-). Data from Statistics Portugal, for the period 1977–2011, and from Banco de Portugal (Long Series), for the period 1974–1977; these two series don’t coincide exactly for the overlapping years, nevertheless the main conclusion stressed in the article is supported by both.

So the question is as simple as crucial: are the Portuguese politicians ready to implement a fiscal policy never adopted in 38 years?… Or, more importantly, is the Portuguese People ready to demand such policy from their politicians?

Overcoming this challenge is key to a future definitely absent of sovereign debt crises. It may even be harder and more pivotal than the challenge of successfully delivering the Memorandum goals. It will certainly be, in its core, a challenge that Portugal will have to overcome by its own means, in full autonomy and with no international assistance.

[1] Free translation of the Prime-Minister’s original sentence: “Se queremos reduzir a dívida podemos criar excedentes orçamentais e continuar o plano de privatizações para acelerar a redução dessa dívida.” Media reports publicly available at, for instance:—politica/passos-coelho-passos-conferencia-pensar-o-futuro-estado-social-tvi24/1410531-6185.htm

About the author,  Rúben Branco: Currently finishing PhD in Economics in NOVASBE. Fields of interests include Macroeconomics, Economic Policy and Political Economy.


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