The distributional implications of the euro area crisis: Greece versus Portugal

This study examines changes in household income in Greece and Portugal in the Eurozone crisis (2010–2015). Both countries faced high financial market pressure and requested lending from the International Monetary Fund and European institutions. The institutional lenders provided financing that assisted countries while they conducted macroeconomic adjustment, reducing public deficits and regaining access to financial markets.

The paper draws on over one million EU household survey responses from 2004 to 2019 to examine how different sources of income—wages, pensions, social transfers—were affected across income groups. The analysis reveals that not all households were hit equally as varying reliance on income sources created distinct vulnerabilities during economic stress. The statistical analyses confirm household income disparities and underline higher pressure faced by the most vulnerable. This was more pronounced in Greece than in Portugal where social safety nets shielded such households relatively more.

The sovereign debt crisis underscored how a weak unemployment benefits system in Greece implied greater hardship for workers than in Portugal, where relatively robust unemployment schemes provided support. In Greece, cuts to pensions and social transfers burdened low-income households, with the bottom 10% facing larger income losses than middle-income groups. From 2017 onwards, targeted reforms, such as the rollout of the long pending minimum income scheme, eased these pressures without significantly increasing public spending.

The findings suggest that stable income from pensions and social transfers played a critical role for the most vulnerable households during the Eurozone crisis. Building effective, sustainable safety nets in stable times prevents harmful ad hoc tweaks during budgetary stabilization. Targeted reforms can help alleviate pressures on the poor. Research relying on microeconomic analyses using detailed household-level data can support the identification of at-risk groups and the design of targeted social policies that effectively mitigate adverse outcomes during economic adjustment.

Click here to go to the paper by Misina Cato, Olga Francova, and Valentin Lang.