INTRODUCTION

This book springs from the natural dialogue between different points of view.

One of us has been defending that leaving the Euro as the necessary measure to rescue Portugal, while the other has claimed that priority should be given to the restructuring of the debt, in order to articulate a landslide and to answer immediate difficulties. To the former (João Ferreira do Amaral), economic degradation as well as European difficulties confirms that the model of the Euro is not sustainable and demand the exit from it as an option. For the latter (Francisco Louçã), given that the model of the Euro is not sustainable, if debt restructuring keeps being blocked and reject, our choices will be limited to the exit from the Euro as the last option, however difficult it will be.

These are steps from a common path trying to present a democratic answer to the crisis, framed by a converging analysis on the nature of the economic and social difficulties that have been imposed to Portugal. One of the interpretations suggests a structural answer, in the long term, while the other proposes an instrument to bring together the necessary powers to impose a change of course.

In both cases, we acknowledge the severity of the crisis that has been imposed on us, and we work diligently to draw a plausible alternative. It is not a tradition in our country that people with different points of view come together in an attempt to understand each other in all clarity, recognising the difficulties, seeking the solutions. The authors of this book considered, however, that this dialogue was not only productive but also indispensable, and they offer to the public the demonstration of that process.

There are still two very good reasons for this unprecedented effort, besides the respect for the possibility of dialogue and scientific inquiry in order to find consistent solutions, namely that, besides holding different proposals to answer the national crisis, we both recognise that, be it by external imposition or by an imperative of national choice, exiting the Euro may happen in a shorter term. Moreover, it may even be the last and only alternative if all other strategies to correct the errors of austerity fail, and it may improve the economic performance, correct the external deficit, and guarantee a mode of financing that is sustainable and preserves democracy.

We have to get ready for that possibility. These are the essential premises of this book. Therefore, we underline that Portugal cannot accept further sacrifices in the name of the Euro, nor continue on the track of this same austerity that has been destroying economy and employment. We shall contribute for a survey of all possible alternatives, and we have a very strong motive to do so: the time to find a solution is running out.

We write to answer the following questions: if Portugal wants to or has to exit the Euro, what will happen in the following days? In which direction should we go? How shall we answer the new problems that will arise regarding economic, politics, and social management? Which action should be taken by the State and the social groups?

We depart, therefore, from a scenario where the exit from the Euro has taken place yesterday, without arguing here whether this is the best strategy, or even the best solution. We admit simply that this may turn out to be the solution imposed on us by the circumstances and that, if it becomes inevitable, Portugal should be able to take the best decisions, which we want to examine and to bring forth to the public debate as soon as possible. The following pages are dedicated to these issues.

The book that the reader is holding in hers or his hands is, therefore, on the difficulties and on some of the solutions, on strategies and possible measures, and, above all, on the necessary answers for an economy policy that respects people, that engages capacities, and that can solve essential problems, such as those regarding employment, financing, and investment.

This is a task that should have been started already and, as far as we are concerned, we are convinced that there is no more time to waste. We need a contingency plan. With that in mind, we suggest these departing points for debate and the engagement in finding alternatives, which we wish and believe will bring together and will make converge many other opinions.

On the other hand, we do no agree nor will we ever agree with federalism as Europe’s repentance. It has never been, nor is it now a consistent alternative to the growing authoritarianism of the European Commission and Council, through which the governments of the most powerful States, especially Germany, impose self-interested visions, favouring financial income and degrading democratic participation.

On the other hand, federalism, or the idea of an “European government” or of a “European State” has always been the motive and the justification for the path the Union has been following. In its name, the Budgetary Treaty has been imposed or, paving the way to it, the rule of the European Semester which determines the submission of proposals for national budgets to previous examination by the Commission.

We did not accept nor will we accept a form of Union that disrespects the existence of States with history, nationalities, culture and democracies that should hold sovereignty over fundamental decisions of their concern. Therefore, we have always claimed that the treaties that constitute the Union should have been the object of referenda and we realise that the Portuguese political regime has promised them but has never fulfilled that promise.

As we shall see, the consequence of this authoritarianism and its policy was a structure for the Euro that imposes the necessity of an internal devaluation for the poorer economies, i.e., it reduces wages and income for the majority of the population as an answer to recession. By imposing this policy together with the governments that enforced them, the European authorities pursue the old deflationist strategy of correcting recession with recessive measures. They have turned the Euro into that “barbarous relic”, as Keynes would call the gold standard in the 20s of last century, and they repeat the same mistakes that caused the first great depression and the tragedies of the 30s.

On top of this, the institutional conditions of the European Union have been rapidly decaying. Thus, the treaty on the banking union deprives the States of one of their most important tools for the regulation of the financial system: the control over the main activities of the banks operating within their territory. On the other hand, the hasty negotiations for the new Transatlantic Trade and Investment Partnership lead us to an extra subordination of environmental and social rules to the conveniences of the markets, not to mention that they seem to have forgotten those monetary issues that are of great importance in the relations between the USA and the Eurozone.

To make things worse, the austerity obsession has already became a golden rule of Europe, promoting a path of impoverishment and internal devaluation, which in its turn constitutes a status quo that is harmful and unacceptable.

This internal devaluation increases the burden of the debt on those States that opt for such measures. This is absolutely clear in an example inspired by Tepper (2012): if a State has a GDP of 100 and a debt of 100, its debt ration is high, at 100%. If, through the adoption of recessive measures, it reduced its GDP to 50, the debt ration raises to 200%, and only the village fool would suggest this as a way to solve the problem.

To make things worse: recession does not fix the problems regarding external competition, it deepens them, rather, as it destroys the capacity of production and the power to invest in fundamental capital goods, while, at the same time, employment opportunities decrease, thus decreasing also productivity. Since we are being governed by the European authorities that adopted the policies of the fool, this book is a reflection and a manifesto against the devastation of our country at the hands of this destructive campaign.

It is our strong conviction that the strategy of austerity, before and after the Troika, is not viable, and that conviction is grounded in the facts. Internal devaluation means the desertification of the country and it cannot have a positive outcome. Only if the salaries dropped by 60% would the effect be the same for business costs as a devaluation of the exchange rate by 20%. The social impact, however, would be so high that it is clearly impossible and absurd to lead a policy based on further impoverishment. We clearly emphasise the idea that internal devaluation, in the form that it has been imposed on us lately, can never stand in place of a devaluation of the exchange rate, when the latter is not possible. In first place, unlike the devaluation of the exchange rate, internal devaluation is not an incentive for economic growth, and even less so for economic growth based on the production of exchangeable goods and services.

In the second place, again, unlike devaluation of the exchange rate, internal devaluation weights on the salaries in order to adjust (and, stemming from that, on pensions), and does so to an extent that quickly becomes socially unacceptable.

In the third place, it places society in the path of high unemployment, perpetuated throughout the decades, condemning hundreds of millions of people to a life without perspective, questioning the very existence of the welfare state.

Beyond what is stated above, there are two further reasons that warrant the survey of the possible effects of Portugal exiting the Euro. First, keeping the country as part of the Eurozone creates a paradoxical situation that has no match, neither in the modern world nor in the past, viz. the situation in which a country, in the context of free trading, while holding one of the biggest debts in the world regarding external debt, uses for that the strongest currency in the world. The paradoxical nature of this situation demands that we question its sustainability.

The second reason concerns the sustainability of the Eurozone itself. The present study presents our research on the effects of exiting the Euro, assuming that, in the meanwhile, the Eurozone remains, in spite of Portugal exiting.

The future of the Eurozone, however, is not certain either. There are many risks. It is enough to think that, in all probability, considering the austerity policies that have been followed and that are to be followed through the fulfillment of the Fiscal Compact, the next financial crisis will find the Eurozone extremely debilitated.

We do not anticipate when that crisis will take place nor how severe it may be. However, if we take into account the history of the last few decades, a new crisis will not take that long to be upon us. Its impact, thanks to the continued deepening of globalisation, will certainly be deep too, even if not as severe as the 2007crisis.

The Eurozone, in that almost certain event, will have little leeway to deepen the austerity policies. It will have little leeway both in social and economical aspects. At the same time, however, it will not have a way out, because the governments in countries such as Germany refuse any other alternative.

A serious disaster is, therefore, a possibility, and it may even imply the chaotic dismantling of the Eurozone. In this way, it is useful to think of an exit for Portugal, even if in a different context, since such enquiry will bring us useful tools to judge the effects of a potential general disaster.

In any case, exiting the Euro and adopting an independent currency is not an easy process. It has pros and cons that should be examined very carefully.

The main advantages are:

a) it would be possible to regain control of an essential tool (the exchange rate) in order to stimulate economic growth based on the production of exchangeable goods;

b) with seigniorage, it would be possible to guarantee that the State would never stop fulfilling its internal commitments (salaries, pensions, etc), even if it may find it hard to fulfill external commitments of to resort to financial markets;

c) by improving the country’s external finance, it would be easier for the banks to finance economic activity, breaking the vicious cycle of financing restrictions.

The main disadvantage has to do with the hastening of inflation during the first few years after exiting the currency union, thanks to the internal impact of the devaluation of exchange rate. In any case, as it has been said before, it is not the goal of this study to evaluate in detail all the benefits and costs of exiting the Euro. However, the concerned reader will find here, we hope, useful elements to help them form their own opinion on this issue.

In case Portugal remains in the Eurozone, the complete absence of alternative approaches that guarantee the sustainability of the country from the economic, financial, social, demographic and politics points of view leaves on those who defend obeying the rules of the Euro the duty to clarify the conditions that would guarantee the sustainability of the country under the currency union.

As this sustainability is far from guaranteed at the moment, it is important to investigate the scenarios of a possible withdrawal from the Euro. We believe that we owe to the public debate this effort of formulating clear alternatives. We do not accept the maintenance of austerity, of privatisation of strategic goods and public services, of the furthering degradation of work contracts, of the decaying of employment, of the forced emigration for youth.

The answer begins by the creation of a strong public opinion, essential in democracy, and for the presentation of a plausible alternative. We are truly convinced that there is no other way but this effort and mobilisation for a nationwide answer that enables us to face the orientations of the directory and of the financial and economic interests it represents. In the arrangement of the European powers, no one will listen to the Portuguese people if it does not make itself heard.

* * *

This is not a technical book. Even though it includes some specialist data, we have written it in a way that it may be read and discussed by anyone interested in the topic. We limit ourselves to chart the problems and the solutions we advance, which will need much more detail and figuring than what we present here. We hope the debate may be triggered by these considerations and that they help determining the best choices to solve the national and the European crises.

There is neither leniency nor condescendence in this book. We do not hesitate either in face of difficulty, because we are aware of the extent of the deep transformation that our answers represent. This is the cautious attitude that should inspire every democratic decision nowadays.

(The following is a summary of the book, originally published in Portuguese. Some chapters were excluded, although we believe this selection presents a fair overview of our argument. Thanks are due to Mariana Vieira for the translation).

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