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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: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portugal as the second most indebted country in the World (next to Seychelles)
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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.
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
Portuguese Real Exchange Rate (2003=100)
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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.
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
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
19801981
19821983
19841985
19861987
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19901991
19921993
19941995
19961997
19981999
20002001
20022003
20042005
20062007
20082009
20102011
0%
20%
40%
60%
80%
100%
120%
Portuguese Sovereign Debt to GDP
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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%.
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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.
Portugal: From financialization to crisis
“Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014
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