Felipe Fulgado // Photo credit: Patricia de Mello Moreira/AFP
The economic situation in France does not really encourage optimism. The public deficit could exceed 6% of GDP, while France's debt will reach 3,228 billion euros – or 112% of GDP – at the end of the second quarter of the year. This is a situation that requires Michel Barnier's government to take strong measures to correct the situation.
A country in Europe has already experienced such an economic situation. In 2008, Portugal suffered the full force of the global financial crisis. The country has a deficit of 20 billion euros and must act urgently to avoid bankruptcy. Today, Portugal has a budget surplus of €3 billion. But how did Portugal achieve this status?
Austerity policy
Portugal was hit hard by the sovereign debt crisis of early 2010, and the country was one of the most indebted in the European Union, with its debt reaching 130% of GDP and its deficit reaching 11.4% in 2010. In 2011, to avoid. After bankruptcy, the government of the time, led by socialist José Socrates, decided to seek help from the International Monetary Fund and the European Union. The country received a €78 billion loan as part of a three-year financial aid program aimed at “reducing the deficit more gradually.”
But Parliament rejects the austerity measures proposed by the Socialist government, leading to the resignation Jose Socrates. It is the Social Democratic Party that wins the legislative elections and brings Pedro Passos Coelho to power. The new Prime Minister commits his country to several austerity and deficit reduction plans. Salaries are being reduced as are pensions. Taxes are increased, such as the value-added tax, which rises to 23%, public assistance is reduced, unemployment benefits are reduced, and the retirement age is raised to 66 years and 4 months. Civil servants are also called upon to contribute: their thirteenth and fourteenth months of work have been cancelled, their salaries frozen, and one in two retirees have not been replaced.
The government has also established a policy to attract foreign investors, particularly through the “Golden Visa”. Since 2012, the residence card has been granted to those who invest at least 1 million euros in the Portuguese economy or who purchase real estate for more than 500,000 euros. Portugal also attracts many retirees thanks to 10-year tax breaks, provided they live at least half the year in the country.
The Portuguese economic “miracle”.
Strong measures that paid off. With the authorization of the Socialist Prime Minister António Costa (2015-2024) Portugal went from an 11% deficit to a 1.2% budget surplus in 2024. The country's debt is about 100% of GDP, according to Portuguese bank figures. The country's growth, as in 2023, should exceed 2%. The Golden Visa policy has made it possible to attract a large number of investors. Since 2012, nearly 12,000 golden visas have been granted with a total investment of €6.7 billion in the country, according to Foreigners and Borders (SEF).
From an employment perspective, the unemployment rate fell from 16.5% to 6.1% in 2024, or ten points lower in ten years, according to the Portuguese National Institute of Statistics. The country has become attractive to large companies looking for qualified and cheap labor. Tourism also plays an essential role in the country's economy. More than 30 million tourists have come to discover the beaches of the Algarve or the riches of the north of the country. Tourism, which generated revenues of €25 billion in 2023, again according to the National Institute of Statistics.
But on the other hand, many Portuguese are experiencing financial difficulties. A quarter of the population will receive the minimum wage of €820 over 14 months in 2024 and two million people live below the poverty line. The National Institute of Statistics estimates that 251,000 Portuguese work two or three jobs to make ends meet. It has become difficult for them to find housing, especially in large cities, such as Lisbon, where the average rent rose by 50% between 2021 and 2022. Public investment in the country remains low, just €6.7 billion, representing just 2.1 percent of GDP in 2023, according to the OECD report.
All this increases the anger of the population. Several strikes have been organized in the public service in recent months to demand increased salaries, such as in hospitals, courts or schools. To respond to this protest, the government of Luis Montenegro signed an agreement with employers and some unions to receive 870 euros per month over 14 months, or 1,015 euros over 12 months.
