‘The solution to the eurozone crisis lies in Frankfurt’
RT:The final review of Portugal by the Troika is coming up. What kind of verdict are you expecting?
Rui Tavares: First of all, I think that one has to [recall] what [price] the Portuguese economy and society has paid during this program of the Troika. It has been quite brutal. We haven’t had as many people emigrating from Portugal since the 1960s, when we had a colonial war and the brutal dictatorship. So now we have had in one year more than 1 percent of the population going away and it’s the most skilled, the most educated part of society. People cannot go to the hospital as they could before, wages have been cut, it has been a massive internal devaluation and the result is that we have now more debt than we had at the beginning.
Interest rates, however, are a different thing. They are at a historical low, so when we had 85 percent of debt per GDP at the beginning of all this, we were paying more than 10 percent of interest on our loans. Now we have debt of 130 percent of GDP, it has just grown a lot, we pay very low interest rates. And why? Mainly because Mario Draghi and the European Central Bank said that he would do anything in his power to save the euro because we have now the mechanism to stabilize the eurozone globally. So this is what I’ve been saying for many years. The resolution to the eurozone crisis is not in Lisbon and Athens or in Rome or Madrid. It is in Frankfurt. When Frankfurt has said it would do everything they can our interest rates have gone lower and that’s why Portugal can now probably go to clean exit that the Troika will present and Berlin would present, Brussels would present as a big political success. They will claim that their reforms in Portugal have been a success. Well, they haven’t, they have destroyed the country, destroyed the society and the economy but we can have a clean exist because of interest rates now being low, so the cost of all debt has gone down; not because of anything that has been inflicted on the Portuguese people but because of measures taken by Mario Draghi at the head of the ECB [European Central Bank].
RT:Portugal’s unemployment rate is above 15 percent and the IMF still forecasts that it will increase despite the growing economy. So is it really possible to talk of the country's recovery?
Rui Tavares: Do not forget that apart from unemployment going up, there are still people leaving the country. So when you see a trimestral or quarterly decrease in unemployment, it’s not taking to account that thousands of Portuguese are leaving for Brazil, Angola, Germany and elsewhere. What happens is that firing people has become much easier in Portugal. The IMF even today has said that it wants to make it even easier. Even bosses in Portugal are saying they don’t need to fire people any easier than they do now, they said that [making] the labor market [more flexible] has gone to the utmost it could or should be done. Companies are having the problem of having a lack of internal demand, they don’t have a problem of surplus of employees at the moment, they don’t need to get rid of people. But what the IMF is doing with two EU institutions, namely the ECB and the European Commission, which have other obligations according to treaties and should have policies on full employment, what they are doing is exactly the opposite – they are intentionally compressing the labor market and easing unemployment because they think it’s a way to lower the wages and perform what’s to be done in terms of internal devaluation, to make, in simple terms, Portuguese products cheaper.
RT:Do the people of Portugal share the sentiment of the country's government when it comes to calling Portugal a poster child for the bailout program?
Rui Tavares: No, not at all. When you go to Portugal the first sentiment that you feel is that people are very dispirited, they are very discouraged not only in terms of the economy or the lack of response from the political actors but even the political system is [under] lots of pressure. People do not believe anymore that voting for a party amounts to anything because they vote for a program and then the government will implement the program of the Troika and Troika policies. Troika policies during these last three years have resulted in a depressed economy, but they have also resulted in a dispirited, discouraged democracy where rule of law, democratic values and fundamental rights are at risk and under pressure. I’ve never seen Portugal as discouraged as now, so the depression is not only an economic pressure, it’s also psychological, collective depression.
RT:Lisbon still needs to raise some 16 billion euros to cover financing needs through to the end of 2015. At whose expense would that money be raised?
Rui Tavares: Our government won’t have any trouble raising money in the short term because as I have said interest rates are at a historical low, people know that Frankfurt is willing [to continue] quantitative easing and this would somewhat raise inflation in the eurozone, there will be a bit of expansionary policy at the eurozone level, also that there is many fleeing from emerging countries and going back into the eurozone. People know now that Mario Draghi will do everything in his power to keep Europe together [so] that nobody will let Greece, Portugal or Ireland fail. So in political terms these are safe bets as we know, it’s safer betting on Portuguese, Irish or Greek debt. There is great need in Brussels, Berlin and other capitals to present Portugal and Ireland as success stories and differentiate these countries from Greece. So I think that the markets are feeling that they are coming back to buy Portuguese debt, not only Portuguese debt but Greek debt in the short-, medium- and even long-term. So our government can now roll down debt by borrowing new money at lower interest rates to push older debt back. In principle, there won’t be any financing problems in the short term. Of course no one knows, anything can happen, you know, European-Russian conflicts scaring the markets or changes in the ECB policies. If we keep ourselves to the domain of the foreseeable, in principle there won’t be any short term financing problems or incurring debt programs for Portugal or Ireland.
RT:Do you believe the economic development of such countries as Greece will follow Portugal's footsteps?
Rui Tavares: Maybe you’ll see in one year or so some encouraging signs but if you don’t have links to a general strategy I don’t think that it would amount to much. What Europe needs now is a global solution for sovereign debt, so we will need a kind of an EU Bretton Woods – a big intergovernmental conference where you’ll try to solve the problem of debt and sustainability in some countries of the eurozone. Then you need your own IMF, meaning the European stability mechanism that is totally under the control of the European Union, the European Parliament and the European Commission, not an intergovernmental but a communitarian institution. Thirdly, you need the Marshall Plan for these countries.
Greece, Portugal, southern Italy and Ireland need to have a Marshall Plan for these countries. This is what I call a “project felicis,” meaning public investment carries through a new agency to re-hold the economies of these countries. If you look at these economies, what they have in common is that they produce goods that don’t have much value added, that are not too complex, that don’t sell in relative terms to other countries expensively. You need to have a labor force that is more educated and more specialized, you need to have economy with more complex products, you need to re-qualify your economy, not to engage into internal devaluation what’s been done in the last years but to re-evaluate these economies in order for them to find their place in the eurozone. That will be something structural and that’s not something that you can achieve in one year or two, I think you need 10 years in order to achieve this. Have a European agency coordinating a kind of Marshall Plan for the Southern Europe. That will do a trick in terms of moving these economies into the 21st century.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.