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At the height of the euro zone debt crisis, with Portugal’s economy nearing collapse, the European Commission told the government in Lisbon that it had to slash wages if it was ever going to boost competitiveness and grow again.

Portuguese shoemakers – one of the economy’s main export sectors – steadfastly ignored the advice and found a way to bounce back while actually increasing workers’ pay.

It is just one of many examples Philippe Legrain, a former adviser to Commission President Jose Manuel Barroso, cites in a new book that argues policymakers misdiagnosed the crisis and ended up prescribing the wrong medicine to resolve it.

He was an adviser from 2011 until resigning in March of this year, so was involved at some of the most critical moments.

“The Portuguese basically said, ‘We’re not going to do that’, and they went upmarket instead,” said Legrain, the author of “European Spring: Why our Economies and Politics are in a Mess”, which is published on April 24.

“They are now selling more expensive designer shoes and their exports are soaring – wages and employment have risen,” he said. “That shows in a nutshell how policy was misguided.”

Read Luke Baker’s Reuters piece on European Spring

Posted 24 Apr 2014 in Blog

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