Portugal is no ‘economic miracle’, central bank governor warns

Portugal is not an “economic miracle” (no matter what the international press might like to say) and must revive stalled structural reforms if it wants faster growth and to stem the emigration of young professionals.

This is the view of Bank of Portugal Governor Álvaro Santos Pereira, who has been talking to Observador radio.

The interview, released today in Observador‘s Sob Escuta podcast heard Santos Pereira admit that the Portuguese economy is performing better than in the years before the global financial crisis but remains far from delivering the long-term prosperity that the country needs.

“Does that mean we are an economic miracle? No, we are not,” he said. “We are growing at a moderate pace. We need to grow more.”

Portugal’s economy has recently been expanding by around 2% a year, a marked improvement on the two decades before the financial crisis, when annual growth averaged well below 1%, he noted.

But stronger economic performance requires political consensus on long-delayed structural reforms.

“To grow more, we need reforms,” said the governor. “For reforms, we need political will and consensus between the main parties. We need to put party interests aside and think about the reforms the country needs.”

Without faster growth, he warned, Portugal risks continuing to lose young talent to emigration.

Santos Pereira cited previous Bank of Portugal research showing that between 15% and 18% of young people, many of them highly qualified, have emigrated.

“It’s good for people to go abroad, study and work, but we have to create the conditions for them to return,” he said.

He also warned that growth of around 2% is not enough to significantly raise living standards.

“Per capita growth of around 1% means it would take about 70 years for income per person to double,” he explained.

Among the reforms Santos Pereira believes Portugal should revisit is labour market reform, after the government’s proposed overhaul was rejected in parliament earlier this month. This does appear to be happening.

Santos Pereira also reiterated his long-standing support for the Nordic “flexicurity” model, which combines greater labour market flexibility with stronger protections for workers.

“I defend greater flexibility while providing greater protection for workers,” he said, pointing to countries such as Denmark and Sweden as examples of successful labour market reform.

He argued that such reforms should be developed through dialogue between governments, employers, trade unions and local authorities – drawing on international best practice (which critics of the government’s failed strategy will say was not evident).

The central bank boss also highlighted pension reform, citing Germany’s current efforts* as a model that could offer lessons for Portugal and the rest of Europe.

Asked whether Portugal’s main political parties could reach agreement on pensions, Santos Pereira said he believed they could.

“We must not forget that there is something greater than party interests, and that is the national interest,” he said. “I see no reason why agreement on pensions should not be possible.”

*Germany’s current efforts involve gradually linking the retirement age to life expectancy (potentially reaching 70 by the 2090s), eliminating penalty-free early retirement at 63, and creating a state-managed, stock-market-funded pension pillar. For more information click below.

source material: noticiasaominuto