Far west and down under

Concerning the general question of the threat of asymmetric shocks and lack of synchronization of national business cycles within a currency union, Luís made two important points. First, there is no synchronicity between the core and the periphery of the Eurozone. Second, the underlying cause for Portugal being the least synchronous in the Eurozone is probably geographic.

However, one should also consider an important fact about the Portuguese economy: it is relatively closed to international trade. In 2005, its Exports/GDP ratio was 28.5% (the following years were even worse, but we should keep in mind that the Great Recession was showing its ugly teeth depressing imports as well as exports). Not only is it low compared to other European economies similar to ours in demographic terms,
 but surprisingly it has even declined (marginally, to be sure) relative to pre-EMU levels (in 1990 it was 30.7%). Incidentally, Greece has a similar performance on both counts.

Now, in the optimal currency area literature it is almost a commonplace to state that greater trade integration attenuates the frequency of asymmetric shocks and is conducive to greater synchronization. Given our low levels of openness to trade (and Greece's), as measured by the Export/GDP ratio, the results brought to our attention by Luís's post should not be surprising. It could be said that my point is just to show the other side of the coin of Luís's answer: we trade relatively little because we are in the periphery. But if we take as valid the generalized diagnosis according to which in the last 10-15 years Portugal witnessed the hypertrophy of its non-tradable sector, then the low levels assumed by the Export/GDP ratio indicate not only physical distance but also other structural transformations going on in the economy.