Paul Krugman praises Portugal’s democratic progress

However, he also warned of three economic challenges: a shrinking tax base, the weight of the automobile industry and exposure to U.S. trade policies.

Nobel Prize-winning economist Paul Krugman praised Portugal’s transformation from a poor, authoritarian country in the 1970s to a successful democracy, during a keynote speech at the Bank of Portugal’s “Falar em Liberdade” conference.

Reflecting on his first visit to Portugal in 1976 as a young MIT student, Krugman recalled a “backward economy with low productivity, no infrastructure, and some of the lowest wages in Europe.”

Today, he said, Portugal is “a normal, free European country” and a “happy story of democracy,” made possible by hard choices and resilient institutions.

He questioned whether Portugal could have attracted tourists, remote workers, and foreign investors if it had remained under fascist rule. “Would they come if Portugal were still a dictatorship?” he asked during the conference commemorating the 50th anniversary of the Carnation Revolution.

Krugman highlighted key milestones Portugal has overcome, including the post-revolution economic restructuring, the integration of returnees from former colonies, the austerity measures imposed by the IMF in the late 20th century, and the eurozone debt crisis beginning in 2011.

“Portugal was subjected to harsh treatment,” he noted, referring to high unemployment and wage cuts during the Troika years.

Despite these hardships, he cited a 155% increase in per capita GDP since the mid-70s as a sign of “significant progress” and convergence with the rest of Europe.

Three threats

While praising Portugal’s remarkable transformation since the Carnation Revolution, Paul Krugman said the country’s economy faces three major challenges: a shrinking tax base, the vulnerability of its automotive industry, and exposure to U.S. trade policy shifts.

A key concern, he said, is Portugal’s shrinking tax base, driven by an aging population and the emigration of young workers.

“Retirement programs are funded by younger generations, and if the working-age population keeps declining, that’s a big problem,” Krugman warned.

While recent immigration trends have slightly reversed this decline, he stressed that the long-term demographic pressure remains a serious threat to fiscal sustainability.

Krugman also emphasized the importance, and fragility, of Portugal’s automobile industry, a major economic pillar.

He expressed concern that Portugal may be overly reliant on traditional manufacturing at a time when global trends are shifting rapidly toward electric and autonomous vehicles. “There’s a real risk that Portugal could be left behind if it doesn’t adapt to the transformation underway in mobility and green technology,” he said.

Finally, Krugman flagged Portugal’s exposure to U.S. trade policies, particularly amid rising protectionism and economic nationalism in the United States.

“Portugal may not be fully dependent on American tourists or companies,” he noted, “but its level of exposure is still higher than that of the average European country, which makes U.S. tariffs and trade disruptions a serious concern.”

Positive note

The American economist also addressed the impact of the global trade war launched by Donald Trump on Portugal.

“I never imagined back in 1976 that the epicenter of global chaos would be my own country, but it is. And we have to think about this: as the trade war and all the madness unfold, how exposed is Portugal? I know it’s not entirely dependent on American tourists or companies, but its significance likely means it’s more exposed than the average European country,” he said. However, given Portugal’s past trajectory, “we probably shouldn’t be too worried,” he added, referring to the crises the country has already overcome, including the eurozone crisis in 2011.

Closing his remarks, Krugman reflected on Portugal’s extraordinary journey: “You could say they lived happily ever after—but not entirely, and not forever, because nothing is forever.”