The New York Times

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Portugal’s Finance Minister: We Tried Stimulus and It Didn’t Work
The New York Times

Defending austerity is not getting any easier for Europe’s politicians. And Vitor Gaspar, Portugal’s finance minister, has it harder than others. The country’s unemployment rate is 14 percent, and its economy, which has been stagnant for years, is expected to shrink another 3.3 percent in 2012.

Opponents of austerity may cite Portugal as a country that could benefit from economic stimulus and kinder budget cuts. But Mr. Gaspar, speaking to The New York Times last week, has a message for observers who say Europe needs to substantially relax its austerity approach: We tried stimulus and it backfired.

Like some other European countries, Portugal tried what Mr. Gaspar called “a Keynesian style expansion” in 2008, referring to a theory by economist John Maynard Keynes . But it didn’t turn things around, and may have made things worse.

“My country definitely provides a cautionary tale that shows that, in some instances, short-run expansionary policies can be counterproductive,” Mr. Gaspar said. “There are some limitations to the intuitions from Keynes,” arguing that the economist himself saw instances when demand-stoking policies might not lead to growth.