European Countries with a Sovereign Debt Crisis: Portugal

Over the past decade, there has been an economic phenomenon that has gripped several powerful countries in the European Union, causing an economic crisis that has caused several countries to spiral into a conflict of identity and policy. While some of these countries have gotten better, others have not. This series is devoted to looking at the actions of each country that faced a sovereign debt crisis, and the actions they took to combat it. Some of these actions have worked tremendously, while others have not. Looking at these actions can give us knowledge about how to handle such issues in the future, while also giving an idea of the strength of the European Union to handle such disasters.


Beginning of collapse

During the early 2000’s, the financial sector in Portugal was rife with bad investments, embezzlement, fraud, and corruption, due to a wildly unethical culture in the banking sector. Finally, in 2010, this activity began to catch up with the country, as banks were accumulating huge losses. During this period, increasing doubt about the health of the euro drove down any market speculation that was occurring in Portugal. Portugal, in panic mode, attempted to put together its own stimulus to save the economy, which only resulted in excessive sovereign debt.

Dangerous deficit

By 2009, the deficit was already at 9.4%, due to incompetent government spending that was wildly ineffective. This number was incredibly high compared to the rest of the Eurozone. The limit, according to economists, is 3% before a country should be considering themselves in huge trouble. As confidence in the market began to rapidly fall, unemployment shot up to nearly 11%, which was unheard of, at the time. The CEO of BPN, the Banco Portugues de Negocios, was eventually arrested for fraud and damaging the economy. Despite this, though, all of the big banks were bailed out at a great cost to taxpayers.

The Troika

The Troika was a financial organization that represented all of the European Union. To attempt to save Portugal from free falling even further, the Troika diverted funds to help Portugal, as it did to other countries. As part of the deal, Portugal would begin to undertake austerity measures and raise tax rates in order to get its debt under control.


In 2014, the financial crisis was finally over, as Portugal marked a return to positive real growth. GDP finally started to grow again, and Portugal can begin to phase out several of the austerity measures that it had undertaken over the years. The government’s credit rating had finally begun to grow again, as well. Despite all of this, Jose Socrates, the Portuguese Prime Minister, resigned after a push by all political parties to do so.