A graph is worth a thousand words. Still I will give you a story. Portugal trade balance (TB) deficit has always been present (from 1985 to 2008 the average was -7.4% per year). It is intrinsically structural and has a large negative effect on the current account (CA). From 1985 to 1995 the surplus in invisible current transactions (including those without a quid pro quo) kept the CA balanced. The decrease in transfers and the expected participation into the EMU spurred an increase in consumption and investment worsening the CA. Today the CA deficit is larger in absolute value than the TB deficit. A dry story. Portugal must reverse the CA trend and the consequent deterioration in its external position. Within the EMU the old short run fix offered by a devaluation (it might have worked in the 80's but was massive) is not possible anymore. I wonder what part of the CA can be timely influenced by policy. Should short run rebalancing focus on the invisible transactions? The current transfers cannot be controlled (meaning they are at other's discretion). Can a better management of the external Investment have some effect? I suspect that long run rebalancing will only come with a transformation from a net importer into a net exporter (as it is suited to a small open economy). I might have an intuition on how to do it but I need to dig a little deeper into the details and anyway it is long run idea. Another graph.
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