Mistakes made by Portugal serve as lesson to new EU countries

28 December 2006

Brussels, Belgium, 28 Dec – The mistakes made by Portugal after it joined the Euro Zone are serving as a guide for what-not-to-do for new member-countries, according to a document published by the European Commission.

“Explosion and recession in Portugal: lessons for new euro members” is the title of the article published by the Directorate-General of the Economy and Finance of the European Commission, which sets out the mistakes made by Portugal immediately following economic and monetary union in 1999.

The author of the article, Orlando Abreu, considers it to be opportune to remind new countries that are to be part of the Euro Zone of the Portuguese case, and how policy mistakes made a boom period be closely followed by the 2002 recession and a period of low growth rates, low of competitiveness, excessive deficits, and high levels of indebtedness of families and the economy in general.

The first of the five lessons to be learned from Portugal is that if there is strong internal demand it is necessary to follow restrictive budgetary policies.

Other lessons are to rein in salary growth, particularly if unemployment rates fall and to increase the supervision of financial market in order to encourage a policy of responsible credit.

Some of the 10 countries that have recently joined the European Union are currently going through an economic growth spurt and budgetary “diet” similar to what Portugal went through when it was preparing to be part of the monetary union. (macauhub)