Portugal: From financialization to crisis
Portugal in the EMU:
From financialization to exit?
Nuno Teles
(CES, University of Coimbra)
nunoteles@ces.uc.pt
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
Portugal as the second most indebted country in the
World (next to Seychelles)
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
European Monetary Union:
Maastricht (1992) convergence criteria;
Liberalization and deregulation of the financial sector.
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
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
Portuguese Real Exchange Rate (2003=100)
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
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.
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
Portuguese Sovereign Debt to GDP
120%
100%
80%
60%
40%
20%
0%
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
European Response to the crisis: Austerity
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.
-(...)
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
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%.
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
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.
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal: From financialization to crisis
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
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014