Macroeconomics and Public Finance

Project: Effects of the EU-rescue-packages on the Competitiveness of Portugal and Ireland

Project Duration

06/2016 - 12/2016 (finalized)

Commissioned by

Federal Ministry of Finance

Project Team (RWI)

Prof. Dr. Roland Döhrn (Chief), Angela Fuest, Dr. Martin Micheli

Leader of Consortium

Walter Eucken Institut


During the Euro crisis, Ireland as well as Portugal lost access to the capital markets. Both countries sought for financial assistance by European Institutions, the IMF, and bilateral credit agreements. The funds were disbursed conditional on implementing structural reforms. These reforms were settled in a Memorandum of Understanding. The key objectives aimed at regaining competitiveness. The study analyzes the implementation of the reforms, and asks whether they have already influenced competitiveness. The starting situation has been different in the two countries. Ireland experienced a period of high growth, which was partly fueled by low interest rates, and which finally culminated into a real estate as well as a credit bubble. Thus, a large part of the reforms focused on the restructuring of the financial sector. Portugal, on the other hand showed a rather slow growth. In Portugal, the improved financial conditions after having joined the Euro area mainly spurred consumption. Capital formation was low, not at least owed to highly regulated labor and product markets and an oversized government sector. The analyses show that both countries successfully implemented most of the agreed upon reforms, even if hesitantly in some cases. However, if measured in growth, the outcome of the reforms is quite different in the two countries. As of today, Ireland is back on a growth path with the negative output gap closing, if not turning into the positive area; a major revision of Irish GDP impedes a definite answer. In Portugal, potential growth is still extremely low and the economy recovered quite slowly after the crisis. However, international experience suggests that labor market reforms will stimulate growth, since they reduce structural unemployment. Furthermore, there is also much evidence that facilitating dynamics in the corporate sector will pay off in terms of higher investment and an increase and modernization of capital stocks. However, these effects will not be visible in the short run.

Selected project related publications

RWI Reports


RWI and Walter Eucken Institut (2017), Auswirkungen der Rettungsprogramme auf die Wettbewerbsfähigkeit der Programmländer Portugal und Irland - Kurzfassung. Projektbericht download

RWI and Walter Eucken Institut (2017), Auswirkungen der Rettungsprogramme auf die Wettbewerbsfähigkeit der Programmländer Portugal und Irland. Projektbericht download