Portugal in the EMU: From financialization to exit? Nuno Teles (CES, University of Coimbra)...

Portugal: From financialization to crisis

“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014

Portugal in the EMU: From financialization to exit?

Nuno Teles(CES, University of Coimbra)[email protected]



Portugal as the second most indebted country in the World (next to Seychelles)



Consequences:

- Pegged currency - Assymetric deflationary pression between exportable and non tradable goods;-Boom in the non exportable goods sectors (e.g. Real estate, retail, financial sector). -Privatizations.-Overvalued escudo against the new euro. Loss of competitiveness

European Monetary Union:

Maastricht (1992) convergence criteria;

Liberalization and deregulation of the financial sector.



Portuguese Real Exchange Rate (2003=100)



The Euro (1999):

-Stability Pact – Limits to Fiscal policy (3% Of GDP limit);

-ECB Independence – Inflation targeting as the sole goal;

-Adjustment variable: labour. Labour costs compression.



19801981

19821983

19841985

19861987

19881989

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0%

20%

40%

60%

80%

100%

120%

Portuguese Sovereign Debt to GDP



Portuguese bail-out (78 bn), subjected to conditionality imposed by the “troika” (ECB, IMF, EC).

Austerity measures:

- 20% wage cut on public sector workers;- Tax hikes;- Privatisation: energy (EDP, REN); transport (TAP), postal service (CTT), etc; - Labour market reform;- Cuts in public services.-(...)

European Response to the crisis: Austerity



An economic and social failure:

- Compression of domestic demand;

-Double-dip recession ( -3,4% of GDP in 2012 and -2% in 2013);

- 16% of unemployment rate;

- Massive Emigration;

- Debt to GDP ratio to reach 130%.



How to get out?

1- “Good euro” federal option:

- Reinforced european budget (with transfers to peripheral countries;- “Eurobonds” (European issuance of sovereign debt);-“Wage inflation” in surplus countries.- ECB monetary policy turn.

Politically feasible?

-- Social and political diverse situations;-- Lack of democratic scrutiny of European Institutions;-- Does not meet the urgency that the periphery crisis calls for.



2- Default and exit:

- Default on sovereign debt;

- Exit and currency devaluation; New forms of monetary cooperation (back to the EMS?)

- Public control of the banking sector; Capital controls.

- Tax reform and industrial policy.

.... if we want to save european solidarity we have to take a step back from the current neoliberal European Integration.

Thank You

Portugal in the EMU: From financialization to exit? Nuno Teles (CES, University of Coimbra)...

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