a debate which goes well beyond the portuguese situation. in general, the discussion has been rather simplistic. the arguments put forward typically suffer from time consistency problems and rest on a partial equilibrium analysis. therefore it is worth being clear and taking a complete and dynamic perspective. conceptually, the counter - cyclical use of budget policy, in particular by allowing the automatic stabilisers to work, finds broad consensus. it is also undeniable that budget consolidation always means austerity, insofar as it exerts a negative effect on economic activity in the short term. this negative effect will be stronger if the variables that generally dampen the recessive impact of budget consolidation – i refer to the interest rate, the exchange rate and external demand – are constrained in some way. this is the current situation : various countries are undertaking budget consolidation simultaneously ; interest rate levels in the main advanced economies are limited by the “ zero bound ” ; and the countries most affected by the sovereign debt crisis do not have an independent monetary policy. on the other hand, it is also generally accepted that above a certain threshold, which in the case of the advanced economies is estimated at around 90 % of gdp, public debt levels negatively affect economic growth in the short, medium and long term. this negative effect is explained by three factors : • firstly, by the greater uncertainty over macroeconomic developments resulting from unsustainable debt paths. uncertainty leads to postponement of investment projects and a bias towards investments with short - term returns, at the expense of projects bis central bankers ’ speeches which may potentially impact on economic growth, but whose returns tend to be long - term ; • secondly, by the increase in risk premia, which increases the economy ’ s financing costs and, in extreme cases, results in the interruption of financing ; • thirdly, by the fact that high debt levels constrain the counter - cyclical use of budget policy, which in the presence of hysteresis, may have lasting effects on the economy ’ s productive capacity, due to the depreciation of human capital and insufficient investment in physical capital. here i would like to take a moment to mention the following : it is odd that the intense public debate on the relationship between budgetary policy and economic growth, recently rekindled following publication of a box in the latest edition of the imf ’ s world economic outlook, has focused only on the size of the short - term budgetary multipliers, when

and a worsening of public debt unsustainability with the consequent further loss of credibility. it is true that in these countries, and this has also been the case in portugal, the high starting position of public debt, the significant stock - flow adjustments and the fact that the budget multipliers are currently higher than usual, are leading to a deterioration in the public debt ratio in the initial phase of the consolidation process. bis central bankers ’ speeches this counterintuitive and undesirable initial effect will only be reversed by the cumulative adjustment of the primary balance, the reduction of the interest rate ( which in turn depends on the credibility of the adjustment ) and last but not least the increase in the economy ’ s growth potential. the importance of economic growth for the trend of the public debt ratio may be illustrated with a simple calculation : starting with plausible values for portugal in 2015 and keeping other relevant variables constant, a one - percentage - point increase in gdp growth over the period 2016 – 2020 leads to a debt ratio which is around 15 percentage points lower than the baseline. 2. a growth strategy for the portuguese economy thus we need to refocus the public debate on the portuguese economy. the great challenge we face is to make portugal a more productive country that creates jobs. we all know that adjusting the public and private sector balance sheets is necessary to help the portuguese economy avoid prolonged relative impoverishment. it is necessary, but as we also know, it is insufficient. sustained growth involves rebalancing the allocation of resources towards the tradable sector. the infrastructure and support services are available investments in the non - tradable sector have been made ; these now must be put to work to create capacity in the tradable sector. on this issue, i would like to touch on three points that i will expand on thereafter. • first, the potential for growth through exports is very high and the strong export performance over the last two years looks quite promising. • second, the private sector will have to be the main driver of the economy ’ s structural transformation. • finally, it is up to the state to take a catalysing role in this structural transformation, namely by providing an institutional framework and macroeconomic conditions that foster high - quality investment and attract highly - skilled labour. i would now like to develop each of these three points very briefly. the potential for growth through exports i will start with growth potential based on exports. contrary to common opinion, the