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March 9, 2014

Lessons from Portugal

Former Finance Minister Vítor Gaspar opens up about his resignation last summer and the hope he still holds for his economically challenged country.

Sharon Kahn

Despite high praise from the European Commission, the European Central Bank, and the International Monetary Fund, many Portuguese vilified Vítor Gaspar as the architect of the country's painful austerity measures. Finance minister from 2011 to 2013, he resigned abruptly last summer, saying Portugal was embarking on a new phase of investment that required “credibility and confidence,” which he felt he could no longer provide. Confident that Portugal is now on the right track, Gaspar, an economist currently serving as special adviser at Banco de Portugal, recently sat down with Chazen Global Insights to discuss his country's future.

Has Portugal's economy turned the corner?

Definitely. The economy started growing in the second quarter of 2013, reaching 1.9 percent GDP growth for the year. That's a very positive development, and Portugal is now actually growing faster than Europe as a whole.

How has that been possible, considering Portugal's situation was pretty dire not long ago?

The austerity program Portugal underwent was really an adjustment program to rebalance domestic supply and demand. Through budget cuts and taxes, the country eliminated its double-digit current account deficit, which now makes us a net lender. Unemployment, which peaked at 17.7 percent in 2010, dropped to 15.3 percent by the end of last year. Even more impressive is youth unemployment, which has fallen from above 40 percent to about 35 percent. We've got a way to go, but 2014 is definitely trending better.

Nevertheless, the austerity measures created political unrest within Portugal and anger among the populace. Looking back, would you have done anything differently?

I would not use the word “anger,” but “concern.” Recessions are painful and clearly lively political debate occurred. People manifested their views. But I also saw remarkable wisdom and the ability to adjust under difficult circumstances. I don’t see anything I would have done differently.

Still, in your letter of resignation as Finance Minister last July, you indicated you no longer had the public confidence....

One of the strong points of democracy is that everybody is replaceable. My resignation followed very specific circumstances, in which terms were renegotiated upwards twice. My resignation was a matter of assuming responsibility. Politically, for Portugal to continue implementing the austerity measures, it was key to regain public trust. For the most part, the same elected officials who held their posts before the recession are still in power, and that's a sign that people understood these were painful measures we had to take.

What are you doing now?

A couple of things. I am special advisor to the Central Bank of Portugal where I have, among other responsibilities, a mandate to reevaluate the research department. I am chairing a commission on taxation of the digital economy for the European Union. Deadlines for reporting on both of those projects is the end of the first half of the year.

I am also continuing my own research. I am working on a paper on lessons the EU can learn from Alexander Hamilton, who helped make US Treasuries the ultimate safe asset and established doctrines that gave the Federal Reserve powers to help stop financial panics. He was a very sophisticated, well articulated executive and, even though the politics of 21st century Europe are far different from 18th century America, I think we can adapt his lessons to our current situations.

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