The peculiar first semester of 2012

In 2011, Portugal was subjected to one of the most stringent austerity packages implemented during the Eurozone crisis, a package known as the troika program. The interpretation of the effects of this program led to a vivid confrontation between two opposing views. A Keynesian view stressed the contractionary effect on the economy, well documented in the deterioration of basic macroindicators. We believe, however, that the austerity package might have simultaneously provided an important and less often acknowledged ingredient to the economy's recovery, namely an increase in investors' confidence as expressed by a sustained decline of the yields in financial markets. To some extent, this opposing German view also accounts for the Portuguese macroeconomic adjustment.