2008 Nobel Prize for Economics Paul Krugman (Photograph: Center for American Progress)

Several informal meetings were held between the 2008 Nobel Prize for Economics Paul Krugman and senior officials of the Portuguese government and the governor of the Bank of Portugal Carlos Costa. The meetings took place before the ceremony that saw the Princeton economist awarded three honoris causa degrees from Lisbon universities on Monday, 27 February, where he said the Portuguese government had no choice in complying with the austerity programme.

According to weekly newspaper Sol, Portuguese Prime Minister Pedro Passos Coelho had lunch with the US economist at the official residence of the prime minister, the São Bento Palace, three days before the ceremony where Krugman was awarded three honorary degrees from Lisbon’s Clássica, Técnica and Nova universities.

Other Portuguese top officials had the opportunity to meet informally with Krugman, according to Sol. On Monday, 27 February, the economist met with the Portuguese Minister of Finance Vítor Gaspar and with the governor of the Portuguese central bank Carlos Costa.

According to the newspaper, the Portuguese opposition was displeased with Krugman’s comments on the Portuguese government’s austerity drive. The US economist said publicly that he “would do nothing differently from the Portuguese government“. Krugman revealed, however, he was very critical of the austerity measures imposed not only in Portugal, but in most of the European countries as well.

Krugman: No more austerity

Krugman’s remark on the country’s austerity drive came after a series of pessimistic comments were made about Portugal and the fate of the country as it struggles with the current crisis. According to Krugman, Portugal has a “75% chance of staying in the euro“, yet he also stressed he considered the Portuguese situation “much better than that of Greece“. However, to avoid Greece’s fate and entering a recessive spiral, Portugal must resist if more austerity is to be imposed.

Quoted by Sol, Krugman said that Portugal had “done everything it had been asked to do”, and after this “it would be time to say no“.

Even if the risks are lower, Portugal is “seen as the country with the greatest risks” of default, the economist said. Portugal’s situation will depend on “what happens in the next two or three years”. Krugman also revealed being sceptic about the country being able to return to the open markets in September 2013, as scheduled: “It will be very difficult. I consider it highly improbable“, opening the door for only short-term debt issues.

The Nobel laureate also brought up the subject of a possible internal devaluation to boost the country’s competitiveness, defending that salaries in Portugal “must fall in relation to German salaries“.