One more apologist for a fall into the abysm

One more apologist of the Portugal leaving the euro zone idea. This time it was a Professor from the ISEG (Economical and Management Superior Institute – Lisbon) the economist João Ferreira do Amaral who came on the public defence of that policy. We have already board this mater on Nov. 13, 2010 with the comment “Insane idea from insane persons” but this time we gone deconstruct the professor argumentation.

The professor defends the Portuguese exit from the euro zone but with the support of the European Central Bank “its necessary a large commitment of the ECB to support and sustain the new currency depreciation within reasonable limits and to create facilities to support the Portuguese banks during this transition period to avoid any panic”¹. On simple words, what the professor think is that Portugal can leave the euro system but the ECB and what that it means is that Germany and the other north European countries, will keep supporting Portugal just like if it was a son who declares is independency from the parents but keep coming home to eat, drop the clothes to be wash and receive the allowance. The difference is that a son is just that, a son, our blood but Portugal is not a northern European countries son to have their support after leaving the euro system.

He believes that the new currency depreciation “By my calculations would be enough somewhere between 30% to 40%”¹ as if once the new currency gets the exchange market the Portuguese institutions will have any control over the market to make it stay at this depreciation rates. The moment the new currency gets on the exchange market it would be depreciate to garbage level by the market agents because of their natural distrust face to the Portuguese economy. On this case the only way the Portuguese Government have to control the new currency exchange price would be through the Portuguese Central Bank operations on the market buying new currency and selling foreign currency, but it’s obvious that this kind of market intervention have high costs to any country if it’s done for a long period.

The allegation for leaving the euro zone is that “All tradable goods sectors will benefit from de currency depreciation. The currency depreciation it’s important to revert the negative effects of having a strong currency.”¹ “we have a huge foreign debt and therefore we have to create the conditions to have a surplus of our balance of payments so we can make the debt payments and at the same time having some margin on our external responsibilities. We cannot create those surpluses inside the euro zone because of our weak productive structure.”¹. As already was said, the currency devaluation do not achieve the effects that are defended by the professor. The currency devaluation has its effects in Portugal more than proven by the practice of these policies for years and years between the 74 revolution and the end of 80’s when we start living some currency exchange stability. It was this years of currency devaluation one of the reasons that allowed all those incompetent national companies to keep open by forcing all country to pay the costs of making their products more competitive on the international market instead of restructure their business or close doors.

The question is that the commodities are bought on the international market with prices in dollar or euro, so the currency devaluation just makes the labour cost lower because all the other production factors as commodities, energy and financing keep the same price because Portugal is totally dependent of the importation of these supplies. And because the public debt must be paid in euros the taxpayers must pay more taxes and the credits interest rates on the banks will be higher for the same reason. This means that there would not be any surpluses on our balance of payments but it would aggravate our economical situation.

In the end the professor reveals the reason why he defends the Portuguese exit from the euro zone “The most rational and intelligent would be recognize that euro project has failed.”¹. Who does not believes on the euro zone does not understand that it is only through the project of a unify Europe that it is possible for Europe to maintain its place on a global economy.

Portugal is on the rock bottom and our only way up it is through cleaning the country of the corruption, bad politicians and incompetent companies, giving space to the excellence and good management to be the future.

¹ Sol newspaper October 2, 2011 (http://sol.sapo.pt/inicio/Economia/Interior.aspx?content_id=29943)