Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.

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Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.

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LISBON — Ramón Rivera had barely gotten his olive oil business started in the sun-swept Algarve region of Portugal when Europe’s debt crisis struck. The economy crumbled, wages were cut, and unemployment doubled. The government in Lisbon had to accept a humiliating international bailout.

But as the misery deepened, Portugal took a daring stand: In 2015, it cast aside the austerity measures its European creditors had imposed, igniting a virtuous cycle that put its economy back on a path to growth. The country reversed cuts to wages, pensions and social security, and offered incentives to businesses.

The government’s U-turn, and willingness to spend, had a powerful effect. Creditors railed against the move, but the gloom that had gripped the nation through years of belt-tightening began to lift. Business confidence rebounded. Production and exports began to take off — including at Mr. Rivera’s olive groves.

“We had faith that Portugal would come out of the crisis,” said Mr. Rivera, the general manager of Elaia. The company focused on state-of-the-art harvesting technology, and it is now one of Portugal’s biggest olive oil producers. “We saw that this was the best place in the world to invest.”

At a time of mounting uncertainty in Europe, Portugal has defied critics who have insisted on austerity as the answer to the Continent’s economic and financial crisis. While countries from Greece to Ireland — and for a stretch, Portugal itself — toed the line, Lisbon resisted, helping to stoke a revival that drove economic growth last year to its highest level in a decade.

“What happened in Portugal shows that too much austerity deepens a recession, and creates a vicious circle,” Prime Minister António Costa said in an interview. “We devised an alternative to austerity, focusing on higher growth, and more and better jobs.”

Voters ushered Mr. Costa, a center-left leader, into power in late 2015 after he promised to reverse cuts to their income, which the previous government had approved to reduce Portugal’s high deficit under the terms of an international bailout of 78 billion euros, or $90 billion. Mr. Costa formed an unusual alliance with Communist and radical-left parties, which had been shut out of power since the end of Portugal’s dictatorship in 1974. They united with the goal of beating back austerity, while balancing the books to meet eurozone rules.

The government raised public sector salaries, the minimum wage and pensions and even restored the amount of vacation days to prebailout levels over objections from creditors like Germany and the International Monetary Fund. Incentives to stimulate business included development subsidies, tax credits and funding for small and midsize companies.

Mr. Costa made up for the givebacks with cuts in infrastructure and other spending, whittling the annual budget deficit to less than 1 percent of its gross domestic product, compared with 4.4 percent when he took office. The government is on track to achieve a surplus by 2020, a year ahead of schedule, ending a quarter-century of deficits.

European officials are now admitting that Portugal may have found a better response to the crisis. Recently, they rewarded Lisbon by elevating the country’s finance minister, Mário Centeno, who helped engineer the changes, to president of the Eurogroup, the influential collective of eurozone finance ministers.

The economic about-face had a remarkable impact on Portugal’s collective psyche. While discouragement lingers in Greece after a decade of spending cuts, Portugal’s recovery has pivoted around restoring confidence to get people and businesses motivated again.

“The actual stimulus spending was very small,” said João Borges de Assunção, a professor at the Católica Lisbon School of Business and Economics. “But the country’s mind-set became completely different, and from an economic perspective, that’s more impactful than the actual change in policy.”

The brighter outlook has lifted companies like Elaia, the olive oil producer. Its parent company, Sovena, opened Elaia as a start-up on a vast agricultural plain in southern Portugal in 2007, just before the downturn. Its timing could hardly have been worse, but managers persisted, paving the way for a surge in production when the crisis ebbed.

An hour and a half east of Lisbon, in Évora, a five-acre factory built by the French airplane-parts maker Mecachrome rises from rolling plains fringed with cork trees. Lured in 2016 by government incentives and European Union loans, it invested €30 million in a vast aerospace park where bulldozers are plowing fields to make way for roads and businesses.

Robots forge precision parts for Airbus, Boeing and other industry giants. Most of the 150 technicians were recruited nearby by an unemployment agency that started an intensive retraining program with the government.

Luis Salgueiro, 29, an apprentice with Mecachrome, was jobless during the crisis. He eventually got work as a waiter, and then in a tomato factory, before landing again at the unemployment office. At the Mecachrome plant, however, he was helping to code a complex machine to fashion a titanium airplane part. Completing the apprenticeship is expected to lead to a full-time job.

“The future looks really bright for me now,” he said, beaming as he gestured around the factory.

Christian Santos, Mecachrome’s director in Portugal, said he plans to hire 150 more workers and to make millions in additional investments in the next three years.

“Things are happening in Portugal,” he said. “There’s an enthusiastic mojo here.”

Camilo Soldado contributed reporting.

A version of this article appears in print on , on Page B1 of the New York edition with the headline: Portugal Dared to Cast Aside Austerity. It’s Having a Major Revival.. Order Reprints | Today’s Paper | Subscribe



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