Wednesday, May 29, 2013

Portugal's Struggle To Recover

The Financial Times provides an excellent analysis of the economic problems in Portugal.  Its economy expanded when it joined the eurozone by gaining access to cheap credit.  Private citizens and the government used cheap credit for their purposes.  Consumption grew rapidly by the use of credit cards and government programs were also stimulated by access to cheap credit.  The credit bubble is over and the economy is shrinking.  Small businesses have been hit hard by limited access to credit and by decreasing consumer demand.  Government has increased taxes and cut spending as well.  Exports have picked up, but not as fast as the decline in consumer demand and fiscal contraction.  Structural adjustments are necessary but there are many obstacles that will limit  economic in Portugal.  The situation in Portugal is worse than it was in the US during the Great Depression.  Portugal has few of the advantages, however, that were available to the US to expand its economy.  Several countries in the eurozone face similar problems.

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