Anatomy of a fiscal débacle: the case of Portugal

Abstract

After entering the EU in 1986, Portugal benefited from low interest rates and some growth momentum. However, the difficulty in taming fiscal imbalances, the procyclality of fiscal policy, the use of extraordinary fiscal measures, coupled with the 2008-2009 economic and financial crisis led to a fiscal débacle and to an international financial rescue in 2011. We briefly review here those developments.