The Path towards Economic and Monetary Integration: The Portuguese Experience

The Portuguese economy initiated its path towards economic and monetary integration in 1960 by taking part in the group of countries that founded the European Free Trade Association. Since then until the adoption of the euro as the national currency in 1999 a long path was followed. The economic and financial integration process has been successful and benefited from the support of a large majority of domestic agents. Along this path the country witnessed substantial real and nominal convergence to the European Union average. However, Portugal is still lagging behind and important challenges lie ahead. Economic and financial integration in the EU was a catalyst for needed economic reforms, it increased the degree of openness and the gains from trade and facilitated nominal convergence through clearly defined and politically assumed macroeconomic objectives. Nevertheless, as the recent years in Portugal illustrate, financial and monetary integration do not guarantee sustainable economic growth nor avoid macroeconomic imbalances. Only continued increases in total factor productivity based on effective supply-side policies can deliver these results.