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

Portugal in the EMU: From financialization to exit? Nuno Teles (CES, University of Coimbra) nunoteles@ces.uc.pt. Portugal as the second most indebted country in the World (next to Seychelles). European Monetary Union: Maastricht (1992) convergence criteria;

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

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  1. Portugal in the EMU: From financialization to exit? Nuno Teles (CES, University of Coimbra) nunoteles@ces.uc.pt

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

  3. 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

  4. Portuguese Real Exchange Rate (2003=100)

  5. 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.

  6. Portuguese Sovereign Debt to GDP

  7. 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. • (...)

  8. 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%.

  9. 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.

  10. 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

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