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10 1080@08854300 2015 1104033
10 1080@08854300 2015 1104033
To cite this article: Antnio Simes do Pao & Raquel Varela (2015) The Memorandum of
Understanding in Portugal and the Portuguese Left, Socialism and Democracy, 29:3, 104-114,
DOI: 10.1080/08854300.2015.1104033
Article views: 20
Download by: [University of Nebraska, Lincoln] Date: 30 December 2015, At: 01:02
Socialism and Democracy, 2015
Vol. 29, No. 3, 104 114, http://dx.doi.org/10.1080/08854300.2015.1104033
1. Partido Social Democrata and Centro Demoratico Social, respectively. The PSD is the
main right-wing party in Portugal; it is liberal-conservative. Because of the 1974
75 revolution, all political parties in Portugal have names much more to the left on
the political spectrum than their real selves.
was in good health, and only began to break down after bailing out the
capitalist interests (principally but not only in the financial sector). The
assets of the Banco Portugues de Negocios (BPN) and the Banco Esprito
Santo alone amount to 10 percent of GDP.2 But virtually the entire
banking sector, in 2008, was linked by a catheter to public funds. The
E70 billion troika loan came with the stipulation that it was for the
purpose of recycling publicly owned junk bonds and not for paying
salaries or assuring the functioning of the State. E12 billion were for
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ponent lost E3.6 billion; capital surplus was fattened by E2.6 billion.4
The European Commissioner of Economic Affairs, Pierre Moscov-
ici, concluded at the beginning of 2015 that Five countries France,
Italy, Croatia, Bulgaria and Portugal manifest excessive disequili-
brium necessitating decisive political action and close monitoring.5
The preoccupation was legitimate from his point of view, or that of
the interests he represents. To understand it, we must enter the
domain of political economy. That is, we must look into the impact
of political concerns on the economic objectives of the troika.
Moscovicis dilemma was this: how to simultaneously restore the
value of his properties (expressed in the rents/interest-payments
obtained in the form of debt-servicing) while also preserving the gov-
ernability of the European Union and its member states.
The word crisis means at once difficult or dangerous conjuncture
and opportunity. These definitions fit the use that everyone has
made of this word with reference to the events of 2008.
What is dangerous, difficult or decisive for those who live from
their work? Like all cyclical capitalist crises, this one appeared in the
first instance in the form of an overproduction of capital. One
expression of this would be bubbles, reflecting for example the pro-
duction of more houses than are needed, at prices well above what
would be reasonable. One can also observe a rise in the unit cost of
labor, especially in the US, whose economy drives the system and
makes the crisis global. From another angle, one can see deflation in
the prices of goods and property. All this is the best that can happen
for a worker: a drop in prices.
The same does not apply to banks and or to the companies that
provide goods and services, which depend on these prices to guarantee
their returns. Therefore, the banks respond to the crisis with
4. L.R. Ribeiro, Crise tirou 3,6 mil milhoes aos salarios e deu 2,6 mil milhoes ao capital,
Dinheiro Vivo, 21 June 2014.
5. Bruxelas coloca Portugal sob vigilancia apertada por desequilbrios excessivos,
Jornal de Negocios, 2 Feuruary 2015.
Antonio Simoes do Paco and Raquel Varela 107
in the same part of the boat. There are people in the hold (the majority),
some on deck, and some at the helm.
What distinguishes 2008 from other crises is the size of the drop in
the GDP and in the value of assets, together with the fact that, in an
economy much more globalized than that of 1929, the extent of the
damage is Homeric. At this level arises another problem with major
impact, namely the possible paralysis of Portugals international
trade laying bare how wrong it was to export at low prices, cutting
wages and thereby shrinking the internal market. The result is a gener-
alized deflation, but without countercyclical measures to arrest it.
As with a plague, countries function like organisms with different
resistances to the illness. Portugals immune system, like that of
Greece, succumbed more quickly.
What real alternative was there? To allow these private capitals
to fail! What would be the cost of this alternative way out? It would be
high, for sure, but not as high as the cost of breaking with the troika.
Letting these private capitals fail would cost the country a long time
to recover, because the economic policy followed by Portugal in
recent decades has weakened its productive fabric as a producer of
goods or social wealth. The whole process of favoring the profitability
of capital via privatizations and concessions itself carried heavy
costs for the State which ended up encouraging an orientation
toward fixed incomes without investments or expenditures: in other
words, inducements to sabotage production. Under these conditions,
however much it might cost to confront the financial markets,
nothing could be as costly as the path imposed by the troika and by
the ruling parties.
Some propose a second way. The left opposition in Parliament
including the Communist Party and the Left Bloc has called for the
renegotiation of Portugals public debt. They argue that a renegotiation
favorable to the majority of the Portuguese population will be inter-
preted by the markets as a default,6 and would cause capital-flight.
This would in turn lead to public control over the banks and the finan-
cial system, so as not to leave the country in an even worse position,
without capital to initiate investments and production.
The European Commission is aware of the dangerous ground on
which it is moving. On the one hand, it must surmount a period of
deflation with no end in sight. To this end, the ECB reduced interest
rates to a minimum (0.05 percent) in March 2015. Given that we are cur-
rently in an expansionist phase of the cycle, under normal conditions,
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there would be no reason to set such a low interest rate. The routine
practice of banks is to raise the interest rate during periods of expan-
sion and to lower it during periods of contraction. Increasing or redu-
cing the money supply is no different from the behavior of any person
turning a water-tap on or off depending on the need for water. But the
bankers in Brussels and Frankfurt are becoming increasingly aware
that there is no water, which will be disastrous when the next cyclical
downturn arrives. What is certain is that it will come. This is what
Keynes called the liquidity trap.
Enforcing the Memorandum of Understanding depends, generic-
ally, on combining the behavior of two variables: the GDP and the
primary budget-balance, i.e., the surplus or deficit of public accounts
prior to interest-payments. This assumes that interest-payments will
be more or less onerous depending on the behavior of these two vari-
ables. The idea of the Memorandum is to create a primary surplus big
enough so that, once the interest-payments have been made, the public
deficit will not exceed a certain limit. In other words, the social func-
tions of the State and the salaries and pensions of public officials are
cut back as much as possible, so that there remains enough tax-
revenue to make the interest-payments on the debt.
This tremendous offensive against people will at some point have
to be halted. The European Commission recognizes this with alarm.
The limits are very narrow, even in this period of cyclical expansion
that is, a period in which profits are rising in the systems peak-
economy, that of the US, which has been enjoying a recovery since
the third quarter of 2009, thanks to the countercyclical helicopters of
bailout-money and the wage-cuts to fund them.
Looking (in Portugal) at variations of investment, of hours worked,
and of so-called total productivity of the factors, we see that even while
investment and hours worked are negative (or declining), the total pro-
ductivity of factors is always positive.7 This third variable is rhetori-
cally taken to reflect technological advances. But the crucial question
7. For more information, see the report of National Budget 2013, 15 17.
Antonio Simoes do Paco and Raquel Varela 109
In the words of a familiar saying, if someone owes the bank 100 thou-
sand Euros, that person has a problem; but if that person owes the bank 100
billion Euros, then the bank has a problem. The only thing that is public
about the debt is its name. What is really at issue is a private negotiation.
The debt must be suspended in such a way as to protect small and
medium deposits and also the assets of Social Security. All the rest
should go into moratorium. The debt is a transmission belt whereby the
public patrimony is used to make bankrupt holdings viable. To suspend
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debt-payments is not easy. But it is the step that recognizes the impossi-
bility of reconciling the irreconcilable. Because it will provoke capital-
flight, the government must first impose total public control over the
banking and financial sector, in order to prevent that outcome.
8. For a listing, see M. Cardina, Margem de Derta Maneira: O Maoismo em Portugal 1964
1974 (Lisbon: Tinta de China, 2011).
Antonio Simoes do Paco and Raquel Varela 111
(Socialist Alternative Movement [MAS]). One year later, the right wing
of the BE (the Poltica XXI current) likewise withdrew, rebaptizing itself
as Forum Manifesto in July 2014. Under the name Tempo de Avancar, it
merged with the Livre (Free) party, led by former MEP Rui Tavares
of the BE, to stand in the October 2015 legislative elections.
9. Legislative elections of 2011: PSD, 38.65 percent (2,159,742 votes); PS, 28.06
percent (1,568,168 votes); CDS, 11.70 percent (653,987 votes). Of 9,624,133 eligible
voters, 5,588,594 people (58.07 percent) voted.
10. INE (Instituto Nacional de Estatsticas), 2012.
11. Pordata.pt
12. INE, 2014.
13. Relatorio Estatstico da Emigracao Portuguesa (2014). The difference is due to the fact
that the freedom of travel permitted under the Schengen agreement and the lack
Antonio Simoes do Paco and Raquel Varela 113
everything. The inability of the PCP and the BE to get more than 10
percent of the vote is an important factor. The BE got 10.7 percent in
the European elections of 2009, but then began to implode. Today the
former BE is split into four entities that will contest the next elections:
the BE itself, the LivreTempo de Avancar, and the Agir (where the MAS
runs together with the almost nonexistent Partido Trabalhista Portugues,
which was colonized by former Left Bloc MP, Joana Amaral Dias,
and a group of former BE militants).
Going back in time, the left vote including here that of the PS
dropped from 3 million to 2.3 million between 1979 and 1991. It ceased
to be the majority, leaving that position to the right. Among organiz-
ations to the left of the PS and the PCP the so-called extreme left
or radical left the decline was even more brutal: from 280,000 votes
in 1979 and 305,000 in 1980 (about 5 percent of the electorate) to
125,000 in 1991, or about 2 percent (a decline of more than 50
percent)! This was the electoral expression of the process of counter-
revolutionary normalization that took place after the revolutionary
upheaval of 1974 1975.
More recently, if we consider as the left of those who are to the left
of the signatories of the Memorandum of Understanding with the
troika (thus excluding the PS), between 1999 (when the BE emerged)
and today the left has registered a shaky growth. The combined
vote-percentages of its four constituent parties Coligacao Democratica
Unitaria (United Democratic Coalition [CDU]),14 BE, PCTP/MRPP, and
POUS have been:
of official records of those leaving the country make it difficult to monitor the
phenomenon. But the number of entries registered in 2013 just by the three countries
with the highest immigration from Portugal a total of 55,910 entering the UK,
Switzerland and Germany is greater than the number recorded by the INE in
the same year (53,786) for permanent departures to all destinations.
14. CDU is an alliance of the PCP and the Greens.
114 Socialism and Democracy
This left will enter the October 4, 2015 parliamentary elections with
each party pedaling its own bicycle.15 This dispersion reflects the lack
of agreement on immediate tasks how to stop the erosion of salaries,
employment and welfare; what to do about the debt; how to relate to
the Euro; how to build strong unions and other workers organizations;
how to stop the hemorrhage of emigration (not only of young people).
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It is significant that the principal radical left parties the CDU and the
BE focus above all on the credibility of their candidates in combating
corruption: Serious people, says the CDU; honest people, echoes
the BE.16
Portugal today is clearly the most backward of the southern Euro-
pean countries in the process of political reformation. Perhaps the pre-
dictable political defeats will encourage later radical initiatives. But
alternatives grounded in defeat normally have little to sustain them.