Yesterday, I had a rather sad conversation with a friend in Portugal. The country has just had to force through another austerity budget; and fears are mounting that it will be next in line for an EU bail-out. “We should never have entered the euro”, my friend lamented. “Everything went downhill from there. For us and for everyone.”
Until recently, it was extremely hard to find members of the Portuguese business and political elite who would entertain such thoughts. I remember visiting the country in late 2002, and writing a gloomy column for The Economist which made the argument that the euro was working out very badly for Portugal. I recieved a courteous welcome in Lisbon. But I think they dismissed what I had to say as the ramblings of a Eurosceptic Brit.
Looking back at that article today, however, I think it has stood the test of time, better than most. things I’ve written. This paragraph looks quite prescient in retrospect:
“Some Eurocrats in Brussels think Greece may be the next Portugal. The Greeks are enjoying a delightful consumer boom following a collapse in interest rates. But commission officials worry that the Greeks, like the Portuguese before them, are mistaking a one-off gain from falling interest-rates for a long-term increase in wealth. In an echo of what happened in Portugal, the European authorities have ordered the Greeks to take another look at their misleadingly optimistic budget figures. “What we are writing about Portugal today, we will be writing about Greece in two years’ time,” says one official.”
In the event, it took eight years for the chickens to come home to roost – and the Greek crisis came first. Indeed the Portuguese are still hoping that they will escape without a full-blown sovereign debt crisis. But that is looking very much in the balance. These problems have been in the making for a very long time – long before the collapse of Lehman Brothers.
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