Wednesday, December 19, 2012

To be or not to be – that’s not the question



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.
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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