segunda-feira, 17 de julho de 2017

The EU project. Internal devaluation, the euro and the new Viriatos*



There are several false alternatives out there. They lie between austerity and exiting the euro with currency devaluation; between this EU and the nationalistic closure; between the Brussels and the national oligarchs, always within an antidemocratic context.

(continuation coming soon – Union of the European Peoples or nationalism on the loose)


Contents

1 – EU – a project inserted into the capitalistic globalization
2 – The expansions of the 80s and the creation of the first periphery
3 – The fall of the Wall and the narrowing of the political view
4 – The expansion/deepening dilemma
5 – The devaluation of wages, income and rights
   5.1 – Currency devaluation and its consequences
   5.2 – Internal devaluation and its outcomes
6 – Current dangers

 
1 – EU – a project inserted into the capitalistic globalization

The EU project, under the initial generic name of EEC, was a post-war element born of the realization that recovery from the conflict’s devastation demanded a concertation within the noble area of the so-called liberal capitalism – the Occidental Europe and the USA. 

The USA, having avoided the ravages of war and suffered human losses not comparable with those that occurred in Europe – especially in the USSR, in absolute terms, and in Greece, in relative terms – had its production infrastructure unscathed and needed to keep it so, in order to avoid an unemployment crisis caused by demobilization, as had happened in the 30s.  Even within the context of the Cold War it would be necessary to replace part of the military production by consumer goods and equipment and a dismantled Europe was a fertile field in which to apply that policy.

Europe, with the major part of its industrial capability, infrastructures, and social equipment destroyed, would be a good place for north-Americans to invest capitals that would immediately return to their origins as payment of European imports from the USA. In this way the dollar supremacy would be consolidated as a reserve currency and for international trade. The Marshall Plan (1947) capped that policy which was completed with the creation of the OEEC (future OECD, in 1948) and of NATO in 1949. Portugal, in return for supporting the Allies since 1943 (… after a swing to the Axis’ detriment) received $140 M and Franco´s Spain was left out.

The competition initially exerted by the Soviet model as a result of USSR’s decisive role in defeating Nazism, fed major leftist parties with ideas of big social advances, in particular in France and Italy, and gained the sympathy of notable intellectuals such as Sartre. NATO’s formation was a good contribution towards that end, with the affirmation of USA’s tutelage over Europe.

The future EU was, until the 80s, a formula copied over from Zollverein[1], a customs union of countries with similar development levels within a concentrated territorial area.  The United Kingdom which, due to De Gaulle’s opposition, had been left out would join the group only in 1973, with Ireland and Denmark.

As a market aggregation project, the original EEC became the precursor of the current TTIP[2] and CETA[3] … negotiated between the multinationals and Brussels or Washington bureaucrats, kept under wraps despite the enormous repercussions in the deconstruction of the traditional functions of the nation-states and to peoples’ lives, under the intention of submitting them to oligarchic instances, on a geographic scale which is much wider and distant from each person than the current EU institutions.

The implementation of those treaties appears as a complementary civilian component of a military structure born in the post-war era – NATO – where the American preponderance is clear.  The already signed TPP[4], intended to regulate and control commerce in the Pacific area – isolating China – renders the Pentagon’s strategy clear: to place the USA in the center of a huge continental and maritime area, from the Pacific’s occidental shores to the Atlantic‘s oriental shores, excluding the BRIC countries and with the remaining nations in the planet, fragmented and submitted to the pressures of multinationals’, debt, and to wars inserted into the “war on terror”. The modernity of Orwell’s vision is evident.

2 – The expansions of the 80s and the creation of the first periphery

The joining of the EU by the geographically eccentric Greece and the Iberian countries, in 1981 and 1986, respectively, saw the appearance of countries with economic indicators clearly inferior to those of the older members, and with them the help programs and the structural and cohesion funds.  This was a new reality, the coexistence within the same economical space of areas with great disparity in wealth and income; despite the fact that Ireland, previously, also evidenced some distance to the other countries.

The community funds were presented as capitals entered with formal compensations, merely bureaucratic, in the name of cohesion, modernization, economical integration, under a vaguely federalist logic to be realized in a future, undefined, time.  The so-called European project, however, has been little more than an economist project for total market opening, of validity of the three liberties sung by liberalism – circulation of goods, capitals and people, top-down and promoter of inequalities.  Thus it can be said that the draining of funds to the peripheral countries was never part of a project born of altruism and solidarity.

These funds had clearly focused objectives of creating greater density of trade within the Community. The roads, especially the transnational, saw a great increment, it being a priori known that the absence of barriers of a political nature, the so called free market, favors the most powerful enterprises, those with bigger technological capabilities and productivity.  The more developed regions will tend to enlarge the area of their exports and the less “competitive” regions will become net importers, with disarticulated economic structures, bad public services, feeble proximity economies and low wages, admitting the polarization, in just a few globally valued activities – mining, forest, tourism, or several others than can be inserted into the logistics networks of multinationals, as a product of delocalization and benefiting from  state support and cheap workforce for the desired specialization level.

·          This has long been known. In the Portuguese case the Iberian adhesion extraordinarily increased the exchanges with Spain, in both directions, though the differences in development are reflected in the large Portuguese commercial deficits with Spain since then; and in the great relevance of that country regarding Portuguese exports and imports. The Portuguese integration in the EU is, in particular, an Iberian integration after centuries of political and economic connection with the Great-Britan or France, as is plainly evident.

·          Some years ago, the impact study of the then called IP5 highway (Aveiro-Vilar Formoso), verified that the new road did not lead to any significant differences in enterprise creation, before or after its building.  Contrarily to the developmental propaganda speech, the road increased the ease of access from the coast to the border and from the latter to the former, making the Beira region little more than a few kilometers of mandatory traverse in order to get to Vilar Formoso (at the border) and from there to the rest of Europe.

·          Fare discounts in highways linking the deserted interior to the coast, increasing polarized into a Greater Lisbon and the Aveiro-Porto-Braga axis, are but a sweat to cheer up the poor from the peripheries.  Tolls fragment territories and are equivalent to perpetual leases, as in feudal times, favoring the enterprises with influence over the party-state PS/PSD[5]; they are access costs to those places in bigger “demand”, with payments on entry and exit, and without promoting any contribution to the flourishing of entrepreneurship in those areas without taxed access.

·          Considering the economic transactions imbalance between the coast and the interior, with the latter mainly being the importer given its economic desertification, tolls help the exports from the more developed regions and tend to further desertify the others. As it is known, the profitability (market) logic is completely blind to social and territorial inequalities, furthering the costs of those ills to the States which, as such, in addition to guaranteeing the profits of the “investors”, have to burden the population with taxes that pay for bad public services.

The community funds and abundant credit created a new reality in the periphery countries absorbed by the Community in the 80s:

·          Gradually, a strong competition by Asiatic countries in traditional areas of the periphery countries, such as textiles, was being asserted, negotiated under the scope of GATT/OMC;
·          The “foreign investors” were seizing the major companies of the periphery’s industrial sectors and including them into wider groups or multinationals;
·          Many capitalists from the periphery countries, lacking technological, management, or capital capabilities, closed or sold their companies, investing the product of those sales in the financial and construction areas, in frank speculative ascent; the community funds earmarked to the building and improvement of road and sanitary infrastructures, amongst others, favored the public works and construction sectors which become over dimensioned, an activity which, if reigned in, would have a recessive impact leaving in a bad position the governmental gang on duty for the pork barrel;
·        In Portugal, the political class and the PSD/PS governments, in order to avoid breaks in the economy, got involved in the flow of events – Expo-98 and the 2004 European football championship – both accompanied by huge flows of public and private works, enormous unproductive spending, in additional to the traditional corruption and ”smart-assism” which also characterize the fraudulent use of funds meant for professional education;
·        This euphoria promoted the recourse to African, eastern-European, and Brazilian emigrants, an atypical phenomenon in Portugal since the XVI century, dating to … slavery times, the majority of those emigrants having left Portugal since the beginning of this millennium, especially after the troika imposed pressing on the brakes;
·        The recycling of the money from funds, and the national capitalists’ sales of their businesses to foreign companies, was done to the benefit of real estate, external commerce, mainly imports (the parochial preference for high end cars deserves highlighting), with the reinforcement of bank’s capitals, with new institutions, mergers and washing of mafia capitals. This period characterized the cavaquism’s[6] golden days’ euphoria and the enrichment of its gangs.

3 – The fall of the Wall and the narrowing of the political view

The dismantling of the Soviet block between 1989 and 1991 engendered a new, unexpected, reality despite the known difficulties that the installed state capitalism was going through, aggravated by the divorce between populations and oligarchies, and in addition to the arms race pressure created by Reagan.  An enormous space was opening in the Eastern Europe, with tens of thousands of people with good technical skills and willing to work for little money, in the mirage of attaining the well-being patterns of the rich neighbors from the occidental side of the Oder-Neisse line. The dismantling of state capitalism, including in the very Russian matrix, propitiated criminal deals, with inflamed neoliberals appearing where previously there were “socialism’s” apparatchicks, which shared the seizing of the state installations with big international companies, at sale prices.

Germany (then FRG) managed to absorb what had been GDR (Eastern Germany) and clearly took off, within the EU, as the most populous country, with a powerful industry directed towards the global market. The former soviet bloc countries were for the most part, since the Middle Ages, within the German expansion area (peasant migrations, Teutonic Knights, Prussia) which in the XIX century would embody the Drang nach Osten politic, this time without a Bismark or the Panzer legions. The European equilibrium pendulum would shift from the Rhein line to the east, clearly favoring Germany.

This new geopolitical situation – a discipline given little relevance by economists, which prefer the excel oracles – also brought the end of the institutional political alternative laid down in the post-war era, with the existence of a soviet bloc, on one side, and anchored, on the west, on socialist and communist parties.

With the absence, from 1991 onwards, of a real “socialism” reference, the socialist parties came to adopt the neoliberal catechism, in order to present themselves as an integral and consolidated part of the current European bipartisanism, having as partners the old conservative, Christian-democrats and liberals, with an identical catechism; a model which was rapidly extended to the East. On the other hand, the occidental communist parties disappeared as a matter of fact, even in those cases where they had reached considerable power (Italy and France), surviving to this day, in the periphery, the PCP (Portuguese Communist Party) and the KKE (Greek Communist Party), aged and closed. The radical groups, derivatives from the student and social agitation which followed 1968, such as the RAF (Baader/Meinhof) or the Brigate Rosse, also disappeared from the scene, be it via repressive action or social isolation, in the latter case well before the fall of the Wall.

The fall of the Wall, even after 27 years having passed, continues to crystalize the great political and ideological proximity between the rotating-regime parties enrolled into the S&D or the PPE, or the conservative penchant of the European institutional lefties, of social-democratic mold (Die Linke, BE, Syriza, Podemos) or ecologists; all of that periodically punctuated by social movements, volatile and lacking both theoretical references for creating alternatives to the neoliberal capitalism and the ability to stand clear from the Keynesian statocratic version.  This situation allows it to be said that there is no European left as, by the way, was pointed out in Lisbon by Toni Negri, highlighting the levity and ridicule of all of those talking about a “radical left”.

4 – The expansion/deepening dilemma

Even before the European geopolitical transformations (1989/91) the 1987 Single European Act pointed out that the deepening of the economic relationships within the then EEC, recently enlarged to Spain and Portugal, should include a complete absence of obstacles to the circulation of goods and services within its space, with the creation of a monetary system within the scope of an EMU -Economic and Monetary Union being essential to that effect.

The Single European Act is detailed and deepened in the European Union Treaty (Maastricht, 1992) which added to it the fundamental preoccupation of building a global transportation infrastructure that would provide physical support for that enlarged market and enabled the exchanges between the South having sun, beaches, and producing agricultural and consumption goods for preferential usage in the North and the latter, with a vocation for chemistry, transportation materials, machinery and knowledge, destined for the internal and, mainly, the external Community spaces. This is no different from the typical hierarchies created by capitalism between the more developed and the periphery regions; and in force in any nation-state such as, naturally on an enlarged plan, the EU.

A phased deployment was proposed for the EMU.  The complete liberalization of capital movements, the ideological keystone piece of the liberal thinking, would occur until the end of 1993; the celebrated convergence criteria would be applied until the end of 1998; and finally, from 1999 onwards, the twins child-birth, the euro and the ECB, the latter having as sole objective to control inflation as determined by Germany, taking into account their experience from the 20s.  More realistically, because inflation is not at all convenient to an over-dimensioned financial system, given that the erosion of a currency’s acquiring power devalues the borrowed capital and the creditors’ income, to the debtors’ benefit.

The dismantling of the soviet bloc would certainly come to perturb this strategy, confronting it with new elements, within the context inherent to capitalism, naturally invasive and not admissive of empty spaces outside the control of its most powerful hierarchies.  Thus, two political alternatives presented themselves:
·        One would privilege deepening the relationships and cohesion between the 12 partners, defined at Maastricht, and where inequalities were already very evident;
·        The other would point to the enlargement to several other countries, increasing the internal cleavages in terms of income levels, development, and opportunities.

In a context already marked by inequalities amongst the 12 members, with a clearly poorer southern border, it was certain that the more developed ones would have advantages derived from their greater technological advancement, better qualified workforce, productivity and availability of capital; and they would be ones to, objectively, define the productive specialization of the three poorer members.

The deepening/enlargement discussion was no obstacle to the integration into the EU, in 1995, of three rich countries – Austria, Finland, and Sweden – a task made easier, from the geopolitical perspective, by the reduction of the Russian role in the Baltic and Oriental Europe (Austria, as well as Switzerland, remain the only central European countries that are not integrated into military pacts); and big difficulties for their adoption of the Maastricht agenda would not be noted.

The euro equivalencies of the national currencies of the first countries to adopt the new currency were fixed in 1999. In 2001 it went into force in 12 of the 15 countries, leaving out – to this day – Denmark, the United Kingdom, and Sweden.

In 2004 takes place the great EU’s enlargement to several of the former Soviet Bloc countries, the old Baltic Republics of USSR itself, Slovenia – of the ancient Yugoslavia republics, the most spared by the war amongst them – and, also, to the insular states of Cyprus and Malta.  All of them being poorer than the then 15 associates, they created a nucleus of the future East periphery and reinforced the Southern one, where the Iberian states were already installed.  In 2007 Bulgaria and Romania were included and, in 2013, Croatia, while Turkey, since the 70s, Serbia and some minor Balkan countries stayed in the waiting queue, not counting the dispute with Russia about the Ukrainian space.

The following map showcases the two peripheries, the Center, and, inside the triangle, the area in Europe where the economic and political power resides which, naturally, is not confined to the states formally belonging to the EU. The Brexit will not cause London to cease to be the major financial market in the world, Paris taking only a modest 20thplace; and Switzerland also will neither lose the installed financial system nor several advanced industries. 


It was becoming clear that the EU was increasingly heterogeneous from an economic standpoint, with larger geographical cleavages in the inequalities area, without fiscal, salary, or financial harmonization and more antidemocratic in its functioning and the decision-taking mechanisms, with the Treaty on the Functioning of the European Union, with the modifications made to it by the Lisbon Treaty (2007), the Treaty on Stability, Coordination and Governance in Economic and Monetary Union (2012) and the mechanisms and institutions created in the heat of the financial crisis, of sovereign debts, and the highlighting, through austerity, of the inequalities between states and the infra-state regions of Europe.

These anti-democratic structures tend to reinforce the hierarchy of the capital within Europe, to center the decision on nuclei of bureaucrats at the service of multinationals and the financial system, relegating to second place both the poor peripheries and the smaller states.  All of this was accepted without any problems or reticence by the national political classes, dominated by the members of the EPP/S&D duet, their work made easier in face of populations estranged from the res publica, with politics presented as a show for voyeurs and through the capitalist powers’ strategy.

The entrenched habit of restricting the political reality to the national scene tends to undervalue several issues:
·        That capitalism is much more than a collection of mutually isolated parishes and, on the contrary, has been generating integrations, building mutually dependency links, thus having the  characteristics of a system; and, as in all systems, the malformations and difficulties of a component drag all into a crisis;
·        That in the EU the economic structures’ interpenetration, which is part of the capitalist globalization, generated a collective matrix where 27/28 countries are inserted, with a crippled body, certainly, but from where it is not easy to extract a part, in the same way that a leg or the liver will not have an autonomous life outside the body;
·        That the EU architecture has been centered in economic integration, tending to nullify the material base of the internal structures of each nation-state without its result being a bigger coherence in the enlarged space;
·        As an anti-democratic political structure, the EU has shaken the states’ political competencies, created conditions for nationalist and fascist drifts in many of them, and never knew how to encourage the territorial harmony starting from a basis of local and regional institutions, as democratic headquarters of administrative and political competencies; it preferred to assert the subsidiarity principle ( article 5 of the EU Treaty) in order to, magnanimously, do function delegation to the nation-states and its autarchies;
·        That delegation caused the majority of nations, so called sovereign until the start of the globalization and its mounting by capitalism, to transform themselves, in reality and for their major part, into something like big autarchies;
·        And, to conclude, the differences and conflicts, latent or in the terrain, at the national level, between classes and social strata with antagonistic interests, can only be analyzed on a global or, as a minimum, regional level.


5 – The devaluation of wages, income and rights

Capitalists spend their time, and that of their think tanks, in a quest for perfecting the production infrastructure and their financial and marketing artifacts, in order to guarantee increased capital volumes. On the other hand, they manipulate the populations in order to get them to work in the way and for whatever amount the capitalists decide; and to get them into debt through an exacerbated consumerism, thus draining, until the end of their lives, revenues for the capital’s reproduction. A double slavery, working strenuously and with bad compensation, to pay for their own and the public debts, in which the State incurs to help the enterprises, the financial system, and the corruption machinery, to that end imposing the fiscal punch.

In what concerns their relationship with the populations, the capitalists and their governments practice several formulas for transferring the costs to the crowd. Thus, a local government, pressed by the local capitalists or by commission of the EU institutions (or the IMF) takes on measures that propitiate that transfer. The ease of capitalism’s difficulties through those transfers is called internal devaluation.  It has become – independently of its format – essential to the survival of capitalism, to the accumulation of capital-money, taking into consideration the absence of productivity increases, the bureaucracy’s brutal increments that absorb a lot of employment in useless, stupid and badly paid functions, the stagnation of the productive investment, etc.

Devaluating a currency generates, by changing the external relationships’ parameters, pernicious impacts upon the population which, in fact, are reduced to cutbacks in the income and rights of the workers and the generality of the local population; it is one form of internal devaluation.  In the Euro zone, considering that currency devaluations are not admissible, the population’s loss of rights and income is processed through a set of mechanisms of the internal type; it corresponds to another specific way of carrying on an internal devaluation.

This precision immediately reveals the intent of the romantic nationalists, supporters of LePen or of patriotic policies, in addition to the common Keynesians. To belittle the effects of a mythical [own] currency devaluation and consider they’ll be virtuous is a sham. While, seemingly, diverging deeply from the neoliberals, they, in fact, only reveal a different way of fortifying capitalism when they stand before the crowds with a technocratic and apparently leftist speech, which coincides with the PCP’s reasoning during the last decades or is even “whispered in the ear” by that same party.
5.1 – Currency devaluation and its consequences

The devaluation of a currency can occur only when a country has its own currency and sovereign monetary authority, a central bank which issues and watches over that currency’s quotations as well as the credit granted by the national banks. Thus, in the Euro zone, the entity able to devaluate the currency is the ECB and a member state, even via its national local branch, would never have the capability to do it.

In the case of a country with its own currency and a chronic external deficit, currency devaluation consists of offering more units of the national currency to get one unit of a foreign currency, accepting less quantity of foreign currency in an export operation, and having to pay more when acquiring goods and services abroad. The objective is to lead the nationals to refrain from importing because buying abroad requires a larger volume of money in the local currency in order to pay for them – in foreign currency, of course; and it also aims to increase the export possibilities because the exportable goods become less expensive to the outside buyers, holding other currencies which have increased their value relatively to that of the country making the devaluation. The immediate and mediate impacts, the external and internal reactions are multiple and are so unpredictable that the only option for whoever has that initiative is to light a candle to a saint and pray for it all to go well.

In theory, a period of monetary devaluations can be interesting if accompanied by import replacement policies, which can work in one or another isolated case, with strong state intervention or foreign investment (including asset buying, made cheaper by the currency devaluation) and salary repression, but the results will be scarce if it is generalized to a set of countries with intense commercial relations with the country taking the devaluation measure.


In face of a threat, or rumors, of devaluation there is a rush to hold on to a strong currency which will tend to raise the buying power of those having it after the national currency is devaluated. In the middle of 2015, when it was admitted with high probability that Greece would be expelled from the Euro, the Greeks wisely stacked whatever they could in bank bills, emptying their accounts in the Greek banks; they perfectly knew that it would be better to have a strong currency – the Euro – under their mattresses then to see their bank accounts in euros being converted to drachmas.

In the Euro case, adopting it and abandoning the national currencies was a peaceful process because nobody disdained to receive a strong currency, generally accepted, free of exchange commissions, in exchange for their national currency; and, not withstanding some opportunistic exploitation in order to make a profit with the currency conversion, the prices’ hike across the countries integrating the euro zone was not high.

On devaluation cases, especially if successive, whoever has the capacity to directly access a strong currency wins – through smuggling and speculation – an accrued financial power to the detriment of the majority of the population – works, pensioners, and unemployed – whose incomes lose acquiring power, in particular when used to buy imported goods. Those standing to win are the exporters of the devaluating country which, in addition to temporarily gaining some competitiveness, will know how to leave the maximum amount of their sales’ product outside the country, in strong currency, because they are not excited by the transfer and conversion of that strong currency into national currency. The importers, in turn, will know how to artificially increase the value of their buys, so they can place currencies abroad, besides taking advantage of the devaluation to increase their profits, when prices are updated to the national currency. A stream of virtues… in the small heads of the nationalists…

One of the keys to the success of any monetary devaluation policy is the way workers will react to the inevitable inflation; the success of this form of internal devaluation depends on it, on the accomplishment of income switch-over from workers to capitalists. At first blush, internal prices, expressed in national currency, are not hit by a devaluation of about 30%[9]. The point is that the imported goods and services suffer a price increase of 30%[10]; and if, in each person’s buying basket, the percentage of imported goods directly or indirectly included in it is about 26% (the marginal propensity to consumption of imported goods in Portugal) the basket’s value increase shortly after the devaluation is 30x26=7.8%. This is the minimum value for the loss of purchasing power for the majority of the population.

The other key issue is the reaction of other countries, namely that of a numerous group of countries – the EU – which absorb the major slice of the exports of a country such as Portugal and that would punish the systemic risk caused by the defector. A study[11] mentions that for a currency devaluation of about 60% by a “weak” country leaving the EU (10 to 20% is considered to be unrealistic) the imposition of taxes to that country’s exports would be, at least, equivalent to the devaluation rate; thus there wouldn´t be a great hope of increasing the sales to Euro zone countries and, in that way, improving the external deficit and the performance of the economy.

On the other hand, exporters will not want any salary raises that compensate inflation because that would reduce the devaluation’s favorable impact; and they would pressure for the utilization of all the state’s and patronage artillery against the workers’ “irresponsible” claims.

If the latter feel little inclined to support the costs of an increased but brief competitiveness of the national capitalists the usual weapons are employed; the storm troops and the yellow syndicalism whose usefulness will be to impose a patriotic responsibility upon the workers. If they meekly accept the loss of acquiring power, as a sacrifice to save the homeland, the incumbent government and the entrepreneurs will be thankful for that passivity.

In parallel to the workers’ fight against the loss of acquiring power, a price increase of the imported goods is observed, an inflationary[12] circle being developed which induces a new monetary devaluation that will generate inflation which, in turn, will lead to a need for devaluation… And with the central bank’s printers working at the price rise levels’ rhythm, in order to supply the banks so those can grant credit in the new currency, at high interest rates, naturally. As has been said before, a break caused to the value of the currency, demands in order to be well succeeded an effective internal devaluation; and that devaluation will be based in a devaluation of work.

We will next examine the particular case of a change of currency, with the abandonment of a strong currency and its replacement by another, with internal acceptance only, as has been proposed lately by romantic nationalists, shy or confessed admirers of LePen, “left wing” patriots and correlative, who defend leaving the Euro, the EU, and, who knows, an exodus to Mars; and that, in contrast, appear to be distracted in face of the debt’s tourniquet, the anti-democratic national or communitarian institutions, as well as totally devaluing the TTIP menace that constitutes a form of peoples’ control by the capital which is much more distanced and encompassing than the EU.

A devaluation of about 30%, as proposed by the Luso nationalists[13], following a re-adoption of the escudo, means that in a first instance all the internal prices would be expressed in escudos at the rate of 1€= 1 escudo, with the introduction of the new currency; a sort of Big Bang that, of its essence, lasts a strict lapse of time. Let us see a practical example.

·          Those earning a salary or pension of €1000 would now nominally receive 1000 escudos but, as the currency devaluation of about 30% immediately follows, that implies that the 1000 escudos would then correspond to only €700. From this point onwards all of the scenarios of social struggle are opened, in which the workers and pensioners are compelled to reduce their purchasing power.

·          In the Portuguese case, where exports embody in their value previous imports of about 42% of the total (see note 13, on page 9), currency devaluation has noxious effects, even in the short term. Let us suppose an export with today’s value of €10000, considering an imported component of €4200 and, to make it simple, let us admit that the rest –  €5800 – corresponds to the added value (salaries, interest, and profits).

·          The adoption of a new currency would have as central objective a devaluation of 30% against the Euro, in order to guarantee greater competitiveness to the exporters. To that end, the same said export, identical in quantity and quality, would have to be placed on the market by, let us suppose, €9000. In that context, internal conditions have to be created for selling the same as before at €9000 (and not at €10000 as before the devaluation).

·          In terms of the internal, national, economy, in the production area, that export would be on the amount of 11700 escudos (€9000) and the imported component, on which there is no margin for reduction, would amount to 5460 escudos (42%x10000x1.3) since the produced good is exactly the same, with the same price in the global market, indifferent to devaluation; thus, with the new selling price (€9000) the imported component will have a greater weight in the total (5460/11700 => 46.7%). In this context, the added value (salaries, interest, and profits) would be the result of the following calculation (selling value – imported component):

11700 esc (€9000) – 5460 esc (€4200) = 6240 esc (€4800)

·          Knowing that bank interest rates are not compressible and that the capitalist’s social function is more valued by him/her than the workers’ salaries, it is not difficult to conclude where the entrepreneurial effort will be focused in order to be competitive in the global market.  With Euro, the added value in the example was of €5800, but with the own currency and a devaluation of 30% against the Euro the added value becomes €4800. Decidedly – the excel calculations show it – currency devaluation on a country and the ensuing inflation are not, as a rule, favorable to those who work.

In the public debt case the change to a national currency also has non-negligible aspects. To debt holders residing in the country, the currency denomination is the only change; however, in terms of external buying power, those holders loose the equivalent of the devaluation rate. Thus, any country’s citizen possessing €1000 in sovereign bonds will now have them as 1000 new escudos but those, with the devaluation, will be equivalent to only €700. To the foreign public debt holders nothing changes. If they had €1000 they continue to have them but knowing that, in such denomination, they will be equivalent to 1300 escudos. As was previously seen, in the imports case, payment of interest and borrowed capital becomes more onerous after the devaluation.

Regardless of being just romantic nationalists or disguised lePenists with “leftist” rhetoric, that political segment communes in one issue – the debt is to be honored.

·        As such, they do not take into account the enormous raise in interest rates and the difficulties to resort to external credit in a Portugalexit scenario once the ECB cushion, which in any case ends in March 2017, is lost. This is in addition to the difficulty in obtaining strong currency to pay the foreign creditors’ interest in a country with a customary external deficit;

·        Greece, despite obediently abiding by the troika’s instructions, would pay at time of writing (16/8/16) interest rates of 8.04% on a 10 year credit, against the 2.68% chargeable to Portugal and that should be compared to those of Spain (0.93%), Italy (1.06%), or Ireland (0.34%);

·          The several strains of nationalists do not value (and many do not even understand) debt as an instrument of the financial system, in particular, and of neoliberalism, in general, to eternally imprison peoples; they see debt as included in a logic of good-will, as if they were loans amongst friends, and absorb (eventually through ignorance) the ideology contained in the Germanic languages in which to have a debt is to be in a sinful state;

·          Because debt is an instrument for political domination it is an object of illegitimacy but the nationalists only beg for a totally ineffective, even if completed, restructuring, as we have shown two years ago[14].

To finish this section, let us refer to the very clear relationship between currency devaluation and inflation. In Portugal, during the 1977/83 period in which the IMF twice intervened in the formulation of the economic policy, five currency devaluations took place, each one between 2% and 15%, in addition to a period of gliding devaluation. Between 1978 and 1984 the average annual inflation rate was 21.7%, substantially above what happened afterwards. In that same period, the salaries’ part in the available income changed from 63.7% to 46.6%; for comparison note that in 2010 it was 51.1% and, after the troika intervention, that part was left at 49.1%. Eloquent.

The already mentioned study (see note 14 on page 10) estimates, from a conservative point of view, that Euro exiting by a southern (read Greece and Portugal) country would entail initial costs of €9500/11500 per inhabitant, which would be reduced to €3000/4000 in the following years.  Compare this with the costs of the Portuguese public debt which, in 2016, stand somewhat above €800 per inhabitant and reflect the positive effect of the low interest rates, in general, and the Draghi support through quantitative easing, in effect until March 2017. In face of his, the austerity that we’ve been living through can almost be considered just an aperitif. What do the Luso admirers of Nigel Farage, LePen, Wilders, Kasczinsky, Orbán, and others, have to say?

5.2 – Internal devaluation and its outcomes

It is evident that the EU, from its inception, has privileged the unrestricted circulation of goods, capital, and people (in the latter case with exceptions and conditions) and that the Euro was an instrument to expedite that circulation, making it more fluid and less expensive. It is also clear that the EU has always been a project for the concentration and valorization of capital, for creation of an enlarged market, and its objectives were never centered in the well-being, harmonization or territorial and social equalization of peoples; this runs contrarily to the politicians’ fraudulent promises made before joining. The mentioned circulation is the base of the said capital concentration and valorization and generates – as collateral damage – the imbalances within the EU, which requalify countries and regions according to the multinationals and financial capital input and output fluxes, hence giving rise to areas where business and workers accumulate and others where the young leave to look for a better life, leaving behind poorer and aged populations.

The decision to create a common currency was aimed at easing exchanges – for people, capital, and enterprises - without banking fees, exchange variations, conversions, or borders and, as such, to implement an internal stability and cohesion element far from devaluation scenarios which are a kind of economic war, a search for higher external competitiveness that not only is brief and has its effects limited in time, but also always generates inflation.

From a monetary point of view, the Euro countries were equated to large autarchies within an EU striving to become more integrated, just because of it; and that implied losing their monetary sovereignty of centuries, their own currency, and the ability to arbitrarily issue currency, those being entrusted to the ECB.

In countries with their own currency, the monetary and credit policies are intertwined with the budget and the fiscal policy, and with social security. Wages, though differentiated, are not as disparate as those existing in today’s Europe. The ambition of having an enlarged space within the scope of the EU, or even of the Euro zone, was not accompanied by a logic of promoting solidarity between the several territories and peoples, a global budget, an homogeneous fiscal system[15], a mutualized public debt, an aggregated trade balance – as happens within nation-states – and a search for greater homogeneity of the collective well-being.

For instance, Brussels imposes maximum levels on each country public deficit and inflation, and created a globalized banking and financial system that does not allow the states to make any definitions whatsoever in those areas; but, in return, it leaves to the local interaction between the national “mandarins” and the so called “market” key areas such as education, health, and housing, showing no interest in defining and imposing generalized high performance patterns. It should be added that salaries and work regulations remain much diversified since it is in that field that a lot of the competitiveness in the European space is played as well as the segmentation of the regional spaces.

In Europe, during the epoch of more or less sovereign states, with their capitalists, borders, customs taxes, and importation quotas, there were no limitations to the circulation of goods, capital, or people within each of the territories. But they had salary rules of their own, fiscal and banking systems of their own, their exclusive currency, and almost total legislative capability, without it resulting in homogeneous national territories in terms of wealth and opportunities, equal salary levels, with the coexistence, as a rule, of depressed areas from where the population would leave, where few activities subsisted and ghettos where the poorest would accumulate, despite policies being in place to reduce capitalism’s typical effects of territorial and social inequalities generation.

In today’s EU, the move to an agglomerate of regions without federal content corresponds above all to a higher capital concentration and centralization plan which benefits the financial system, the multinationals, and the mafia economy, subscribed by both the Brussels or Frankfurt bureaucrats and the national political classes. Thus, dynamics which generate territorial and social inequalities stand out and cross themselves with others which previously existed (or have meanwhile appeared) within the nation-states, fusing with one another, recreating new realities. This process of absorption or repulsion of people and territories is what is called in politically correct speech “European integration”.

As can be clearly seen, declining regions in Europe are, essentially, those belonging to peripheral countries, both before and after the integration in the Euro zone; inversely, those remaining attractive – despite the financial crisis and the economic anemia of the latest years – are those that were already so before the Euro appearance, with or without adopting this currency, or even before the European integration.



The goods and capitals circulation’s expediting through a common currency is imbedded into the neoliberal capitalism’s logic, which pays little respect to national divisions and defines an impossibility of monetary devaluations as well as promotes diminished inflation risks; and that makes it easier, without a doubt, to multinationals and global financial institutions.

In this context, a test to each country’s capitalists capacity is made so that, taking advantage of the infrastructures built with Community funds, they assert their skills, through the so called internal devaluation – salary crushing, work rights deterioration, a fiscal policy that is liberal and friendly to “investors”, recourse to delocalization of production or segments of the productive chain to countries with miserable work pay and little environmental sensitivity, and, in addition, function externalization by resorting to precarious, subcontracted, jobs.

In the particular case of the Iberian Peninsula, a big banking and financial concentration was seen, and the entrepreneurs dedicated themselves to an activity which was excluded from external competition and was not exportable, the real estate, transforming the sites of old factories into shopping malls, supermarkets, and residential areas. The income that made that voluptuousness possible came from the families’ savings and recourse to credit, with state incentives towards that indebtedness, turned into the economy’s engine and with the disastrous results we all can see. This drift did not command any criticism or warnings from the EU directorates and it is known why it was so: in order not to harass the speculative interests of the financial system which were keen on the increment of the debt (public and private), a fast way to increase the capital-money. Later, following the subprime crisis and the Lehmans’ bankruptcy, the banks’ recapitalization fell on the bureaucrats and political classes’ laps while the troika would come to impose austerity as a formal political instrument for internal devaluation. Note that the measures that shaped austerity in Portugal were modeled from those adopted in Germany in 2002 (Hartz committees) ordered by the “socialist” chancellor Schroeder, to whom Merkel must have truly thanked that precious performance.

It is difficult for us to say, in abstract, which is more nefarious to the populations: the loss of purchasing power and the police repression inherent to inflation, or the loss of income and rights inherent to austerity, brightened up by police bestialities.

It is better to raise the analysis level to a liberating choice.

The common economist approaches show a predominance of neoliberal’s aggressive and blind conservatism or the Keynesians’ meek and shortsighted conservatism, the difference being between a half full or a half empty cup of hemlock. In both situations capitalism, the State, debt, private property, hierarchies, authority, representative “democracy”, nationalism, consumerism, are seen as natural, immanent to societies and, thus, a-historical; this is translated into a demented optimism regarding the PIB’s eternal growth as well as the health of the planet that shelters us.  At this level, cast into a dichotomy through medialization, there is no other way out for the future than within one of those discourses. In what concerns currency, it is convenient to mention that liberals like internal devaluation above all, to reduce the plebeians’ income, while the Keynesians are more attracted by currency devaluation, in order to achieve the same results.  The choice is yours: a half full or a half empty cup of hemlock?
6 – Current dangers

The tout court nationalists’ political work receives some acceptance by the plebeians because it inserts itself into the longing for a mythical personage such as the nation’s protecting father (Viriato) or in a restricted view of Humankind that does not go further than the hamlet’s campanile; but the slippage of impoverishment and the absence of a left raises the danger of being attracted by the fascist version of nationalism inherent to LePen’s followers.

LePenism cannot be easily assumed in countries having fascism in their current collective memory, as in the Iberian Peninsula, unlike the European North, or East, where the religious eschatology (Hungary, Poland) was marginalized for decades by the pro-soviet power. So the fascist inducing ideas – isolationism, borders, patriotism, strong state, armed forces, national identity, own currency – appear more easily, and with greater seriousness and tolerance if wrapped in leftist language.

That package was the aim of previous work, initiated decades ago, to battle the New State’s nationalism through a “democratic” nationalism, maintaining subject to national unity any antagonism of, on one hand, workers and ex-workers and, on the other hand, capitalists and the political class. The book “Towards Victory” (Rumo à Vitória) by Alvaro Cunhal[16] defends that strategy with the concept of democratic and national revolution (1964) which has been cosmetically updated as Left patriotic policy.

The nationalist speech is laid on an affective, sentimental, values base which nullifies any possibility of an argument (there can only be a discussion with rationality and, conversely, where faith is preponderant no discussion is possible); thus, disagreement is pointed out as treason to the homeland, the Euro and EU exit being constituent dogmas of the return to homeland’s greatness.  Because capitalism is not contested or even mentioned, we presume that its continuity is, implicitly, a dogma.


(To be continued soon – Union of the European Peoples or nationalism on the loose)


This and other papers at:





*Translator note (TN): Viriato (aprox. 181 BC to 139 BC) was a mythical Lusitanian leader who fought the roman invaders of the Iberian Peninsula. He successfully gave battle and contained the romans for many years.  The “Viriato problem” was finally solved by treason: he was assassinated in his sleep by three of his allies, bribed by the roman general Servílio Cipião. This act was considered shameful for Rome, the superpower of the time, which saw itself as the exponent of civilization.


[1] The development occurred in two phases. The first, in 1834, encompassed the German northerly states, and the second, in 1867, included the southern ones. It aimed to established freedom of commerce in that region and it unified the 39 states of German origin. During its validity it eventually included Austria and Luxembourg, and free trade agreements with Norway and Sweden were in force.

[3] Comprehensive Economic and Trade Agreement 

[4] Trans-Pacific Partnership

[5] TN: PS (Socialist Party); PSD (Social-Democratic Party).

[6] TN:  “cavaquism” from Cavaco Silva, the then prime minister, PSD leader and President of the Republic (2005-15).

[9] A value pointed to by Louçã and Ferreira do Amaral in their book “A Solução Novo Escudo” (The New Escudo Solution).

[10] “In reality, according to the 2008 data, the private consumption had about 26% of imported content and GFCF (Gross Fixed Capital Formation) had about 39%, only surpassed by exports that includes 42% of imported content” cited from Análise ao Esboço do Orçamento do Estado para 2016 – UTAO | PARECER TÉCNICO n. º 2/2016 (Analysis of the State Budget Draft for 2016 – UTAO Technical Opinion).
 
[11] UBS Investment Research, Global Economic Perspectives, Euro break-up – the consequences, September 9, 2011.

[12] The Portuguese nationalists belittle inflation. Do they trust the deterrent power of syndical and police repression? Because they mention that in 1992/94 the change of currency in Armenia and Ukraine caused inflation rates of 438% and 249%, they must believe in the intervention of Our Lady of Fátima to protect Portugal from the inflation ogre, in the case the country does leave the Euro. (Louçã e Ferreira do Amaral in “A Solução Novo Escudo”).

[13] They do talk, with a straight face… about a negotiated exit from the EU. They fail to understand that the Euro zone is a system and that its oligarchs would never ease the exit of a country, even if it is a small one, due to the systemic risks that it would cause. Otherwise they would have left Greece to its own fortune, in 2015.

[15] On the other hand countries do exist which are true paradises for the multinationals – Ireland, Luxembourg, and Nederlands – the latter being where almost all of the companies present in the Portuguese stock market, comprising the PSI-20 index, have their headquarters.

[16]  Leader of PCP (Communist Portuguese Party) for decades (1913-2005)

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