Competitiveness and convergence in Portugal

Abstract

The complementary package of macroeconomic and structural policies associated with Portugal joining the European Monetary System in 1992 failed because budgetary control was inconsistent with the new currency regime. In its three sections, this paper focuses on the consequences for growth of this enduring policy failure. Its two main reasons were excessive primary expenditure and state-led wage inflation. Reform procrastination and the reversion of a purely demand-led boom is the main lesson from Portugal on what can be called competitiveness for convergence. Reforms are more likely to fall prey to the second-best argument under ready-made policy packages with scant knowledge about local conditions. A more systemic approach to national economies will include the concept of complementarity as an input into economic advice, as shown in connection with transition by Macedo and Martins (forthcoming).