Antonio Costa, Prime Minister of Portugal. CC.
Portugal has been getting noticed for its remarkable recovery in the last two years, defying the doomsayers who predicted the devil was coming the moment that the Troika-prescribed policies were reversed and an expansionary policy was adopted instead.
The left-wing government that came to power in 2015, ridiculed by the media as a “contraption”, reversed many of the cuts imposed by the previous austerity government, which had tried to go “beyond the Troika” with disastrous consequences. Under Troika policies the deficit limit was always exceeded, public debt rose from 90% to 120% of GDP, and unemployment went through the roof.
Oddly enough, this left-wing alternative, by reducing austerity, and returning income to the middle-class, managed to make the economy grow, increase the tax revenue, reduce the burden of unemployment benefits, and achieve the lowest deficit in the 43-year old democracy. Public debt is also decreasing for the first time in many years.
Was this an unexpected outcome? Not so, say most economists who had always claimed countercyclical policies were the way to fight an economic depression, and had dismissed the notion of “expansionary austerity” as absurd. It seems Keynes was right, after all.
Meanwhile, though, the structural flaws of the Eurozone, that contributed heavily to Portugal’s financial crisis, persist. For concrete proposals on how DiEM25 would resolve them, see our European New Deal.