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Opinion
Ferdinando Giugliano

Portugal Is a Keynesian Mirage

Lisbon's fiscal miracle reflects deep cuts in capital spending.
No miracle workers in Portugal’s Parliament.

No miracle workers in Portugals Parliament.

Photographer: PATRICIA DE MELO MOREIRA/AFP/Getty Images

Throughout the euro-zone crisis, the European Commission has been accused of imposing unnecessary austerity on countries in distress. Economists, particularly from the left, argued that tax hikes and spending cuts were self-defeating, as lower growth only makes budget targets harder to achieve.

The supporters of this view felt vindicated last week, when Portugal posted the best budget figures since becoming a democracy in 1974. Despite raising pensions and public-sector wages, the left-wing coalition government led by Prime Minister Antonio Costa announced a government deficit just below 2.1 per cent of gross domestic product. The European Union had set Portugal a target of 2.5 per cent.