Challenges and Opportunities Under Conditionality: Portugal

Abstract

When the financial crisis hit, Portugal was in a vulnerable position due to high public and private sector debt. While struggling to maintain financial stability, in the first phase of the crisis the government focused on mitigating the impact of the crisis in terms of domestic demand. Nonetheless, the public debt spiral triggered by this response made a bailout necessary. Agreement on a rescue plan between the Portuguese government on the one hand, and the European Commission, the European Central Bank and the International Monetary Fund, on the other, was reached in May 2011. While the socialist government (2008–2011) led by Sócrates had voiced concerns regarding the issue of democratic deficit and fiscal sovereignty, the positions of the conservative government led by Passos Coelho aligned with those of Germany. Traditionally a supporter of a supranational approach to European policy-making, throughout the 2010–2015 period Portugal was inclined to push for stronger political and financial integration, for instance preferring a European Stability Mechanism whose lending capacity exceed 500 billion Euros. Nonetheless, its weak position within the Council of the European Union substantially prevented Portugal from exerting a sufficient influence in this sense during the Eurozone crisis negotiations.