Portugal was one of the European countries hit hardest by the economic crisis that began in 2008 and by the euro-area sovereign debt crisis that followed. This page, originally written during the crisis years, traces its causes and remedies and has been updated with what happened next.
The years of growth
After the Carnation Revolution and two International Monetary Fund interventions, in 1977 and 1983, by the mid-1980s the Portuguese economy was recovering, helped by falling oil and commodity prices. Joining the European Community in 1986 raised great expectations: Portuguese firms gained easier access to new markets and foreign companies invested in the country, attracted by a relatively skilled, low-cost workforce. Large EU funds arrived for roads and infrastructure, and the state benefited from privatising key sectors such as banking and telecommunications. Portugal was one of the eleven countries that launched the euro in 1999, with notes and coins introduced in 2002.
Decline, even before the crisis
Adopting the single currency, together with other factors, made the economy more fragile. The country was not very competitive internationally, joined the euro at an exchange rate considered overvalued and faced competition from Eastern Europe and Asia in traditional sectors such as textiles. Firms, often small and loosely organised, could not offset with exports an ever higher volume of imports, financed by easy credit. Between 2002 and 2007 growth was close to zero and unemployment rose from 5% to about 8%.
Poor management of part of public spending and EU funds, costly and not very useful projects, public-private partnership contracts that proved very expensive for the state, and a series of corruption cases also played a part. Public debt and above all foreign debt grew rapidly.
The 2011 bailout
With the 2008 international crisis and contagion from Greece, interest rates on Portuguese debt rose to unsustainable levels. In March 2011 Parliament rejected a new austerity package and the Socialist government of José Sócrates resigned; in April the country asked for international help, as Greece and Ireland had already done. In May a 78-billion-euro programme was signed with the Troika (European Commission, European Central Bank and International Monetary Fund). The June election was won by the centre-right PSD of Pedro Passos Coelho, who governed in coalition with the CDS-PP.
Austerity
A phase of widespread austerity cuts followed. The Troika memorandum imposed labour reform, with easier dismissals and lower severance pay, cuts to unemployment benefits, the temporary abolition of four public holidays, cuts to public wages and pensions, VAT raised to 23% and other tax rises, and privatisations of companies such as the electricity company EDP, the energy grids, the airports and the post office. The Constitutional Court struck down some measures, such as suspending the thirteenth and fourteenth monthly payments for public employees.
The social effects were severe: in 2013 unemployment exceeded 17% and youth unemployment 40%, and hundreds of thousands of Portuguese, mostly young, emigrated. Unlike in Greece, however, protests, though often large, took place without major unrest, and there remained a broad consensus on staying in the euro.
Exit and recovery
In May 2014 Portugal completed the programme with a "clean exit", without a precautionary credit line, although that same year the collapse of Banco Espírito Santo, one of the country's main banks, required a costly public rescue. From 2015 the Socialist government of António Costa, supported in Parliament by the left-wing parties, gradually restored the cut wages, pensions and holidays while keeping the deficit under control.
The recovery was driven by exports, the tourism boom, foreign investment and the renewed competitiveness of small and medium-sized firms, just as hoped during the crisis years. In 2019 the country recorded its first budget surplus since the return of democracy; after the pause of the pandemic, the accounts returned to surplus from 2023 and in 2025 public debt fell below 90% of GDP. The legacy of those years includes wages that remain low by European standards and heavy emigration of young graduates. The current picture is described on the page on the Portuguese economy.