a country with a banking crisis, Portugal has had much _better_ export performance than Greece. Portuguese exports recovered immediately and have risen 9pp of GDP: reforms to boost exports were important in Portugal (Gros et al (2014).<sup>25</sup>

**Figure 8: Share of exports going to EU28 countries**

<!-- Start of picture text --> 85<br>80<br>75<br>70<br>65<br>60<br>55<br>50<br>45<br>40<br>2000 2002 2004 2006 2008 2010 2012 2014<br>Greece Ireland Portugal Spain<br><!-- End of picture text --> Sources: Eurostat.

A number of factors help explain Greece’s dismal performance, among them: deteriorating institutional quality (including political uncertainty), a substantial decline in access to finance, specifically trade credit, increased taxes on producers during fiscal adjustment, and real exchange rate appreciation well into 2012. The real effective exchange rate depreciated the least for Greece during this period. These factors raised the cost of exporting.

_<u>How did this play out in the labor market?</u>_ <u>GIPS had large changes in UE and LFP rates. By 2014,</u> LFP had fallen steeply in Ireland (4pp) and Portugal (3pp) compared to 2007 levels. Only Spain had a slight increase. At the same time, unemployment rates rose steeply (though levels differed)‐ rising the most in Greece, from 8.4% in 2007 to 27.5% by 2013 (229% rise), where output also fell the most. Remarkably, the increase in the UE rate in Spain, where the decline in growth was much lower than that in Greece, and where recourse to the IMF and EU bailout schemes was not necessary, was similarly astronomical‐ rising from 8.2% to 26.1% by 2013 (217%). UE rates also rose significantly in Ireland and Portugal (200% or more ‐since 2006 and 2008‐respectively), though, with labor force participation falling steeply, the _levels_ were lower. Table 4 shows the relationship between GDP and employment for the four countries. Noteworthy is the changed relationship between growth and employment in 3 of the 4 countries. In Portugal, there is a strong positive relationship after the crisis, picking up the effect of continuously falling employment, in contrast to the lack of a relationship before the sovereign crisis. Accordingly, labor intensity of output post‐crisis, fell markedly. For Greece, the relationship also strengthened substantially during the crisis and interestingly, in Ireland’s case‐the country with the strongest growth recovery (the only one with a positive average growth rate) and a strong record of employment growth‐ there was no significant association between employment and GDP growth (Table 4).<sup>26</sup> Only Spain maintained the relationship between employment and output.

_<u>Employment and productivity moving in opposite directions.</u>_ <u>The increase in GDP pc during the</u> pre‐crisis period was associated with large increases in labor productivity and a relatively small increase in employment. In the post crisis period, most of the changes in GDP per capita have been reflected in employment declines, rather than productivity declines. Labor productivity per hour worked is higher in

> 25 Exports are about 30% of GDP in Portugal. With 30% of GDP in exports, 6% growth in exports alone would contribute 1.8% of GDP.

> 26 Ireland’s growth recovery in 2014, close to 5%, was impressive compared with that of the others, being more than 4‐5 times greater and occurred much earlier. However, its unemployment rate continued to increase until 2013 as the link between growth and employment changed from that in the pre‐crisis period.

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