Argument

Portugal’s Sardine Capitalism Is a Model for the World

Lisbon’s macroeconomic model could show other small countries the path to recovery.

Patrons sit at a sidewalk cafe in Lisbon.
Patrons sit at a sidewalk cafe in Lisbon on April 19 amid the COVID-19 pandemic as shops reopened with limitations and restaurants served patrons indoors. Horacio Villalobos/Corbis via Getty Images

LISBON—Defying conventional wisdom has a long history in Portugal. After all, in an age when maps showed the Earth ending abruptly somewhere around Bermuda and the waters teeming with sea monsters, Portuguese explorers dismissed the risks, placing Vasco da Gama (the first European to reach India by sea), Bartolomeu Dias (the first to round the Cape of Good Hope), and Ferdinand Magellan (who led the first circumnavigation of the Earth) in the vanguard of global imperialism.

Today, Portugal’s colonies are long gone, but the country’s penchant for charting its own course lives on in its uncanny ability to maintain what is arguably the European Union’s most successful mixed economy. Despite the global financial crisis a decade ago and the more recent economic downturn driven by the pandemic, Portugal has emerged as a growth model for Europe’s smaller economies, which have struggled to balance cultural traditions and political values against the demands of much larger economies—such as Germany, France, and Italy—with which they share the euro.

Despite the fiscal handcuffs that such cohabitation imposes on smaller eurozone members, Portugal has found a formula for maintaining Western Europe’s most reasonable cost of living, relatively low unemployment, steady economic growth, and general public contentment in an age of polarization.

Patrons sit at a sidewalk cafe in Lisbon.

Patrons sit at a sidewalk cafe in Lisbon on April 19 amid the COVID-19 pandemic as shops reopened with limitations and restaurants served patrons indoors. Horacio Villalobos/Corbis via Getty Images

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LISBON—Defying conventional wisdom has a long history in Portugal. After all, in an age when maps showed the Earth ending abruptly somewhere around Bermuda and the waters teeming with sea monsters, Portuguese explorers dismissed the risks, placing Vasco da Gama (the first European to reach India by sea), Bartolomeu Dias (the first to round the Cape of Good Hope), and Ferdinand Magellan (who led the first circumnavigation of the Earth) in the vanguard of global imperialism.

Today, Portugal’s colonies are long gone, but the country’s penchant for charting its own course lives on in its uncanny ability to maintain what is arguably the European Union’s most successful mixed economy. Despite the global financial crisis a decade ago and the more recent economic downturn driven by the pandemic, Portugal has emerged as a growth model for Europe’s smaller economies, which have struggled to balance cultural traditions and political values against the demands of much larger economies—such as Germany, France, and Italy—with which they share the euro.

Despite the fiscal handcuffs that such cohabitation imposes on smaller eurozone members, Portugal has found a formula for maintaining Western Europe’s most reasonable cost of living, relatively low unemployment, steady economic growth, and general public contentment in an age of polarization.


A view of Lisbon's tiled rooftops in the Alfama neighborhood.

A view of Lisbons tiled rooftops is seen in the Alfama neighborhood on June 14, 2012. Antonio J Galante /VW PICS/Universal Images Group via Getty Images

The “P” in the derisively labeled “PIIGS” group (Portugal, Ireland, Italy, Greece, and Spain) of heavily indebted eurozone members has recovered well this year from the global downturn caused by the COVID-19 pandemic. In the fiscal quarter ending June 30, in spite of continued on-again, off-again COVID-19 restrictions that hit its important tourism industry, the economy expanded at a 4.6 percent annual rate, according to the European Commission.

Both the International Monetary Fund (IMF) and Portugal’s central bank agree the country will grow at about 4 percent in 2021, quite a feat for a country that’s heavily dependent on tourism that basically dried up in 2020.

Unemployment, at 6.7 percent, compares favorably with that of traditional European Union powerhouse Germany, at 5.5 percent, and even the United States (5.4 percent in July). In contrast, the jobless rate of its Iberian neighbor, Spain, hovers above 15 percent; Italy just managed to dip below 10 percent; and Greece remains the sick man of Europe at 15.9 percent. Even Ireland, heralded as an exemplar by the financial engineers who designed the eurozone rescue package’s harsh terms, has a higher jobless rate (7.6 percent).

All this is heady stuff for a country of 10 million citizens whose primary influence on global affairs these days is the fact that its language is still spoken by about 240 million people in the far-flung lands it once ruled, including Brazil, Angola, Mozambique, and East Timor. With the world’s 34th largest economy—known mostly for sardines, soccer, and Port wine until recently—Portugal has managed to defy stereotypes about southern European nations (supposedly lazy and imprudent) and countries run by socialists (inefficient and uncompetitive) to combine growth, social cohesion, and quality of life.

U.S. News & World Report, which never met a topic it wouldn’t rank, teamed with the University of Pennsylvania’s Wharton School and BrandAsset Valuator Group to list Portugal as one of the world’s leaders in “quality of life.” The methodology is fuzzy, and the top 20 are an unsurprising mix of city states, Scandinavians, and northern Europeans. Yet there, at 21, just behind the United States, sits Portugal.

Portugal ranks 17th globally in the 2021 World Index of Healthcare Innovation, an annual study conducted by the Foundation for Research on Equal Opportunity, a think tank. On the index’s rankings for quality of care like choice and patient outcomes, Portugal ranks third globally, just behind much wealthier Switzerland and Israel.


It wasn’t always this way. The 2008-2009 financial crisis exposed the weaknesses and contradictions of the eurozone project. Lumping economies like France and Germany into a single currency with the likes of Latvia, Cyprus, and Greece led to trouble. Unable to devalue a national currency—the classic economic answer to a sovereign debt crisis—weaker eurozone economies nearly lost access to international markets. The solution imposed by the continent’s apex economies, led by the Germans, was an austerity so deep it crippled smaller economies for more than a decade.

But Portugal has been an exception. Nearly bankrupted by the global financial crisis due to its inability to meet its quarterly debt payment or devalue its way out of trouble, Portugal accepted a $92 billion bailout from the so-called “troika”—the European Commission, European Central Bank, and IMF—in 2011. Unemployment flirted with 18 percent early on in 2013 before starting to drop, but Lisbon kept up with its obligations and, unlike other countries where bailouts were arranged, its political scene remained relatively stable. Socialist governments gave way to social democrats in 2015, then back to socialists in 2021. Along the way, Portugal resisted troika pressure to accept a second tranche of bailout funds and shook free from foreign-imposed austerity.

How different from its fellow PIIGS: Italy, with the highest debt-to-GDP rate among the world’s large economies (158 percent), has never recovered from the disastrous collapse it suffered after 2008. That year, Italy was a $2.39 trillion economy. At the end of 2020, it was a $1.9 trillion economy, a loss of 20 percent of its economic heft, since 2010. Spain, though not as indebted, has an unemployment rate in the high teens since the crisis began and remains at 15.3 percent today.

Greece, of course, is the continent’s economic basket case and has suffered the extra burden of struggling to cope with the refugee crisis spurred by Syria’s civil war. Of the original PIIGS, only Ireland has fared nearly as well as Portugal, though its less generous welfare state and high youth unemployment could see a resumption of the age-old Irish curse of youth emigration once COVID-19 travel restrictions loosen.

Once free of the troika in 2015, Portugal used a combination of tax incentives, fiscal stimulus, and innovative outreach to foreign investors.

Portugal, though, stands out, especially because it was long the poorest country in Western Europe. Once free of the troika in 2015, Portugal used a combination of tax incentives, fiscal stimulus, and innovative outreach to foreign investors, particularly a “Golden Visa” that traded residency papers and a path to EU citizenship to anyone wealthy enough to purchase property worth 500,000 euros ($591,000). This helped stoke growth, which ran at an average pace of almost 2.6 percent from 2015 until the pandemic hit. The momentum built up during this bounce-back period gave Lisbon room to open the spending spigot when the crisis hit.

The result, economists said, is Portugal is now an economy able to weather crises—“a poster child for what could be done differently in the context of the European recovery,” said João Borges de Assunção, a professor at the Católica Lisbon School of Business and Economics in Lisbon, in 2018.

The professor was right: After taking a beating in 2020 and declining by just more than 7.5 percent, 2021’s 4 percent bounce back is expected to be followed by GDP growth of more than 5 percent in 2022, according to the European Commission, more than making up ground lost during COVID-19. That’s much higher than the commission’s 2022 forecasts for the hyper-prudent Dutch (3.3 percent), who led the tut-tutting of the “PIIGS” during the eurozone crisis; the French (4.2 percent); or even Germany (4.6 percent).


A woman takes selfies at Cais das Colunas in Lisbon.

A woman takes selfies at Cais das Colunas in Lisbon on March 11, 2020.PATRICIA DE MELO MOREIRA/AFP via Getty Images

That Portugal is beautiful and relatively affordable has been an open secret in the world of “global citizens” for more than a decade now. Spurred in part by unusually generous tax and immigration policies aimed at luring wealthy northern Europeans and North Americans to resettle, the country’s expat population has exploded from about 100,000 people at the turn of the century to nearly a half million people in 2020, when the rate of increase slowed for the first time since the financial crisis due to COVID-19, according to a report by Portugal’s Foreigners and Border Service. Even so, the overall number grew by 12.2 percent in 2020, and that has increased as restrictions were loosened this year.

One reason beyond beautiful beaches, low prices, and great seafood for this influx is the “Golden Visa” rule whereby Portugal allowed foreigners who purchase sufficiently expensive real estate to obtain a residency visa for renewable for five years, at which point they can begin the process of obtaining citizenship. Already a popular retirement destination for the British, Germans, and other EU sun-seekers, a new wave of Chinese, Russian, Arab, and North American money began to flow when the rule was enacted in 2012. Not surprisingly, Portugal, in the words of global law firm DLA Piper, “is currently considered by many to be the most attractive country in Europe for foreign investment.”

This all sounds great for wealthy expats. But what about the Portuguese? Surveys show the Portuguese genuinely appreciate the money and attention tourism and expat relocations bring to their country. “In business, you sell what you do best if you want to make a good living,” said Alfonso Camara, a shop keeper in Braga in the country’s north. “And what we do well is hospitality, and natural beauty, and sardines.”

Cooks turn sardines over the grill during the St. Anthony's Day Parade.

Cooks turn sardines over the grill during festivities surrounding the St. Anthony’s Day Parade in Lisbon on June 12, 2018. JOSE MANUEL RIBEIRO/AFP via Getty Images

Not everyone, of course, is thrilled. The price of real estate, especially in popular tourist destinations like Lisbon, Porto, and the sandy shores of the Algarve, has skyrocketed. This trend is not consistent with a country that prides itself on holding down the cost of living. Angry at seeing the prospect of homeownership—or even a reasonable tenancy—pushed over the horizon, groups like Stop Despejos (“Stop Evictions”) and Morar em Lisboa (“Live in Lisbon”) have held protests and disrupted new developments.

Concerned about backlash, the socialist government pushed a revision to the Golden Visa law that disallows tax and immigration benefits for properties purchased in Lisbon, Porto, and the Algarve. Whether that stems the tide of what Stop Despejos dubs “social terrorism” is uncertain. It may merely redirect the flow to the country’s many gems overlooked by foreign retirees and visa-seeking foreigners. But it is not likely to dissuade wealthy Chinese, Arabs, Russians, and others for whom the major “return-on-investment” is the safety value of an EU passport. Either way, the government is hoping to react to public concern without killing the foreign geese laying all these golden eggs.

Whatever becomes of the expat influx, what’s more startling is the extent to which Portugal now stands as a lure to macroeconomists.

Whatever becomes of the expat influx, what’s more startling is the extent to which Portugal now stands as a lure to macroeconomists. “Portugal is now often cited as an example of economic resurgence, applauded by international institutions,” wrote Ángel Sánchez, a professor of macroeconomics at Spain’s Elcano Royal Institute, an economic thinktank.

The idea that Portugal, besides being an attractive place to retire to, is also emerging as a model for smaller European countries has stoked national pride, particularly given the lingering resentment engendered by the troika’s austerity demands a decade ago.

Portugal remains burdened with a lot of government debt: about 155 percent of GDP at the end of 2020, according to the Organisation of Economic Cooperation and Development. That’s a lot of debt, but it follows an economic crisis that demanded spending. And again, it’s not the 236 percent of GDP that burdens Greece or even the 160 percent of GDP hovering over the United States.

Fitch Ratings, the global economic ratings firm, sees reason for optimism. “Following last year’s sharp rise, general government debt will resume a downward trajectory, underpinned by improved growth prospects, favourable financing conditions and the government’s commitment to fiscal prudence,” the firm said in May, affirming Portugal’s “BBB” credit rating.

That BBB is hard won and hardly makes Portugal’s sovereign bonds—the vehicle through which the country borrows on international markets—stiff competition to U.S. or German treasuries. But the Portuguese, with far less purchase on global markets and still very much a sardine among salmon in the eurozone’s claustrophobic monetary environment, are showing smaller European countries that, with a savvy mix of policy and fiscal measures and a little luck, you can live the good life and also grow the economy.

Michael Moran is an author, documentarian, and commentator on global affairs and a senior executive at Microshare, a global Smart Buildings data intelligence and sustainability firm.

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