The Euro-exit and the dilemma of the Portuguese left
(DRAFT: working paper)
One of the
practical issues that dominates the debate within the left and in the
Portuguese society in general as a consequence of the Euro Crisis, is the
question if Portugal should or should not stay in the Eurozone. Since the
intervention of Troika in Portugal we have seen different organizations on the
left and on the right take different points of view in this issue. A deeper understanding
of this issue is crucial to find possible ways out of the current crisis
situation.
Supported by
an increasing number of academics that the incompatibility of the peripheral
economies within the monetary union, the movement that defends the exit of the
Eurozone is led by the Portuguese Communist Party (PCP), and includes movements
as the MRPP. It’s position is usually influenced by nationalist and
protectionist ideas, defending the sovereign rights of the Portuguese nation. Most
point out that the Euro is a barrier for the competitiveness of the economy. The
exit of the Eurozone would enable the country to regain control of vital
monetary and budgetary macro-economic instruments to help the national economy
recover from the crisis situation, through competitive devaluation and more
inflationary-oriented policies. An example of this standpoint is represented by
this interview with Jeronimo de Sousa, General secretary of the PCP.
Jerónimo de Sousa, in turn, said that the euro meant that Portugal lost “competitiveness,
sovereignty and the instruments that could help the country in a crisis scenario". Early in the debate, the
communist leader pointed to
"the conception of the European
Union” as a point of divergence
between the PCP Left Bloc.
(Sol, 2011)
The leaders
of the left bloc, in the persons of Francisco Louça and Joao Semedo, have taken
the position that Portugal should stay in the Eurozone, as the exit would have “catastrophic
effects” (Sol,2011). The exit of Portugal would be “catastrophic” as net-importers
and net-debtors, such as Portugal and the other PIGS, would see the values of
their debts in Euro rise, as well as the prices of the imported products. The
exit of the Euro would mean a devaluation of around 50 percent of the new
currency, which would mean a devaluation of the purchasing power of salaries
and pensions, as well as a rise of the value of the consumer and public debts
and interests.
For Louçã (Sol,
2011), the exit would be nothing else than a much quicker and more brutal means
to implement austerity. As the aim of austerity is a long term “internal
devaluation”, the currency devaluation by the Euro exit would only bring the
same effects, but immediate. The only sector that would gain with these kind of
policies, would be the export-sector
"For
every three euros we export, we import four euros"
said the leader of BE, pointing towards an increased indebtedness
as the main consequence of a Portuguese exit of the euro. "everything
would be much more expensive. Wages and
pensions would lose purchasing power, and people who
have housing loans would have to
begin to pay much more. The
worker would be the first victim of a
catastrophic exit of Portugal the euro,"
said Louçã, who defended the issuance of
European bonds as
a way to "stop the speculation" on the national debt. (Sol, 2011)
"Beware of the beast.
The Portuguese public debt is serious and dangerous, and the debt of banks is as big as the public
debt. The day the banks would be nationalized, the Portuguese public debt will double" [...] Francisco Louçã said to disagree with any Euro exit
strategy, and understands that this is being advocated by
the "useful idiots of Mrs [Angela] Merkel." This
exit, he said, "only favors
the destruction of a common European
policy, important for the
response to austerity, and puts
the left in the inacceptable
position of proposing austerity
against its people." The party leader admits that there are economists advocating this
strategy, which "would favor
the export sector", with the
devaluation of the currency, expecting
that the export industry would later invest in the
economy and create jobs.
"The calculations say it [the escudo] would be devalued by 50 percent," making imported goods "fifty percent more expensive and half the worth of the wages and pensions."
To Francisco Louçã, the nationalization of failed banks would mean the "socialization of the gigantic losses of financial capital", assuming the payment of the double of the public debt doubled, "in taxes, or any other manner". He argues that "the left cannot propose an even more brutal and fast austerity as a solution to current austerity," believing that "in a few years the bosses will invest more and save the economy". "I think it does not make sense from a social point of view. The left has to take a point of view that unifies the people, where the capacity of struggle unites, which is the struggle in defense of the salaries,” he concluded. (Expresso, 2011
"The calculations say it [the escudo] would be devalued by 50 percent," making imported goods "fifty percent more expensive and half the worth of the wages and pensions."
To Francisco Louçã, the nationalization of failed banks would mean the "socialization of the gigantic losses of financial capital", assuming the payment of the double of the public debt doubled, "in taxes, or any other manner". He argues that "the left cannot propose an even more brutal and fast austerity as a solution to current austerity," believing that "in a few years the bosses will invest more and save the economy". "I think it does not make sense from a social point of view. The left has to take a point of view that unifies the people, where the capacity of struggle unites, which is the struggle in defense of the salaries,” he concluded. (Expresso, 2011
The proponents
of the exit on the other hand argue that staying within the Eurozone entails
submitting the country to the austerity policies of the European Central Bank,
and the Troika of ECB, EC and IMF. According to them, the continuation of these
austerity policies in order to stay in the Eurozone, are the real social and
economic disaster, continuing the downward spiral of unemployment, recession
and neoliberal policies.
Each of the
parts brings in some fundamental, correct critiques to the debate. The
opponents of the exit bring fundamental critiques to the nationalist course and
point out the catastrophic effects of leaving the Euro. The proponents bring in
fundamental critiques to the Eurozone and the catastrophic effect of staying
within. If those critiques of both sides are correct, this means that both
alternative solutions are bad. It seems that the Portuguese left is struck
within a dilemma which has no way out; any of the alternatives will be
fundamentally bad for the Portuguese working class, and the Portuguese left is catched
within the own contradictions of the capitalist system.
The
apparent dualism between the two bad options, is a typical dialectical contradiction.
What appears to be a dilemma with only bad options, is nothing else than a reformulation
of other social contradictions which are fundamental to address in order to be
able to have non-bad solutions for the fundamental dilemma of the Euro-exit.
These fundamental contradictions of capitalism emerge in various forms in
crisis periods; there is the recurring tension within capitalist governance
between the accumulation process the legitimation of the system (Paterson), There
is the tension between wages and profits (Marx), between democracy in society
and the freedom market…
The crisis
of the Eurozone however reveals one of the most fundamental contradictions in
its clearest form; the fundamental political choice between the common good and
private property. The common good is embodied by public services, a sustainable
economy, good life, good salaries and working conditions, protection for the
old and a future for the youth. Private property is embodied as juridical
rights to ownership of economic resources, shares, but in particular ownership rights
on the value of bonds, other debts and the rights to their repayment and the
right to their interests. Within the current crisis situation it becomes clear
that there is an impossibility to warrant both. Either policies defend the
rights of the bondholders and the “rule of law”; which is the policy of
Germany, the European Commission, the Troika and the national governments
implementing austerity programs, which means a downward spiral of cuts in
public and private spending, flexibilization and recession, with the scarification
of the welfare state and democracy. Or they defy those property rights, the
financial markets, the Troika and the ECB, practice juridical and financial disobedience
and give priority to social rights, defending the historical social conquests,
social justice, and fight for their improvement.
If the Euro
is let out of the question, what is the question then? Other more fundamental
policy choices emerges from the reality; the current social crisis situation
demands far-reaching intervention to correct the consequences of the economic
crisis and market failure – one would name them the internal contradictions of
the capital accumulation process. Rising unemployment, particularly a youth
unemployment reaching 30 to 50 percent in the peripheral member countries of
the Eurozone, and the loss of private purchasing power provoking internal
recession, requires massive public investment programs for job-creation and
support of salaries. Unsustainability of debt-levels both in the public and
private sector requires a massive debt-canceling and restructuring scheme,
which will require a nationalization of the financial sector, in order to save
it from its own collapse after cancelling debts, as well as to have the means
to control public investments and redirect the economy towards public
priorities. The housing-question, with hundreds of thousands of young people
being forced to live again in their parents homes, while 750.000 homes have
been abandoned, should be addressed with a redistribution and restoration
program. The agriculture industry, which was gravely affected by
contra-productive European CAP, should be addressed by a new Agrarian reform
and sustainable reform… Similar issues raise in the forest management, small
businesses, precarious working conditions, the ghetto-formation, … All these
issues are the consequences of market-failures and as the capitalist system
gets into crisis those problems increase, and are further increased by policy
measures and austerity to secure financial property.
If a
government would implement these measures within the current institutional
framework, it is evident that these policymakers will enter in a confrontation
with the authorities and interests governing the Eurozone. Non-payment of the
public debt, the creating of massive public investments and nationalizations
are policy-measures which would be considered as inacceptable in Brussels. As
The ECB probably will not grant enough cash in such circumstances, probably
this disobedient government will have to recreate its own monetary instruments.
The long term consequence would therefore be a Euro-exit.
This form
of Euro-exit however relates to the initial euro-exit as a dialectical negation
of a negation, in that this Euro-exit as a consequence is totally different
from the Euro-exit as an initial step. While the initial exit would mean worsening
of living conditions and devaluation of salaries, the second exit would be a
consequence of increased living conditions and relative salaries. While the
initial exit would mean an increasing unsustainable debt and interests, the
second exit would be the consequence of having no debt anymore. While the first
exit would lead to international isolation and autarchy and an example of
failure within the hegemonic economic framework, the second exit could be the
start of an example new international solidarity movement with Portugal as an
example of success of finding new ways of economic alternatives.
It seems
clear that the whole continent is struggling with the same problems at the
moment. Northern Europe has been able however to transfer part of the crisis
situation to the south through competition strategies. If because of this the
rest of Europe is not yet ready for change; let them wait… Changes in Southern
Europe will quickly require far-reaching political changes in the north; as its
banks should have lost , and now its tax-payers will lose billions of
unsustainable debt. A Euro-exit of the PIGS will moreover cancel the Germanic
competitive advantages which have been cemented on the Euro and a common
monetary policy.
Conclusion
In this
paper we discussed the different approaches towards a possible Portuguese exit
of the Eurozone. While the pro-exit faction argues that the Euro damages its
competitiveness and that staying in the Euro means a continuation of the disastrous
spiral of deflationary politics, the anti-exit faction argues that a
devaluation would mean a catastrophe for purchasing power and living
conditions. Both sides have convincing arguments against the other, which turns
the euro-exit question into an impossible dilemma. The dialectic method however
enables us to transgress this contradiction into a political choice between a
common and private property. We conclude that the solution of the dilemma is to
not make a choice, but to advance with changes in socio-economic policies that
end austerity. A possible Euro-exit would therefore be a consequence of the
strategy, not a strategy as such. The difference between both Euro-exits, relate
as a negation of the negation. Political change and leaving the central
question open to the European establishment seems to bring the non-bad option in
a dilemma which seem to have only bad solutions.
References:
Sol, 2011, Saída
de Portugal da zona euro divide Jerónimo e Louçã (Pedro Guerreiro); 12-05-2011 http://sol.sapo.pt/inicio/Politica/Interior.aspx?content_id=19087
Expresso, 2011, Louçã
discorda de qualquer estratégia de saída do euro; 17/11/2011 http://expresso.sapo.pt/louca-discorda-de-qualquer-estrategia-de-saida-do-euro=f688604#ixzz2FX8RnuRA
[1] The author is Economist and
Political Scientist, and PhD candidate at CES, the Center for Social Sciences,
University of Coimbra – Portugal, and at the department of Political Sciences,
University of Ghent - Belgium
