1. 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) nunoteles@ces.uc.pt

2. 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)

3. 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.

4. Portugal: From financialization to crisis “Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014 Portuguese Real Exchange Rate (2003=100)

5. 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.

6. Portugal: From financialization to crisis “Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014

7. Portugal: From financialization to crisis “Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014

8. Portugal: From financialization to crisis “Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014

9. Portugal: From financialization to crisis “Alternative solutions to the Debt Crisis”, Brussels, 07/03/2014 Portuguese Sovereign Debt to GDP

10. 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

11. 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%.

12. 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.

13. 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