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In Portugal, data – and a book – give currency to exiting euro

A woman walks past graffiti that reads, “Banks / People” in Cacem, on the outskirts of Lisbon June 5, 2013. Portugal’s gross domestic product slumped 0.4 per cent in the first quarter after contracting 1.8 per cent the previous quarter as the country entered a third year of recession, data showed on Wednesday.

JOSE MANUEL RIBEIRO/REUTERS

It looks like summer beach reading for the Portuguese won't be Dan Brown's newest thriller or Fifty Shades of Grey. It will be a slim book called Porque devemos sair do Euro – Why we should leave the euro – which is flying out of bookshops.

The book, by economist Joao Ferreira do Amaral, is the bestseller in Portugal. It was published in April and is already into its fourth printing. As its title suggests, it advocates ditching the euro and reprinting the escudo.

The arguments of anyone who thinks Portugal has no business being in the euro zone were bolstered again Wednesday, when the National Statistics Institute released revised gross domestic product figures. They were, as usual, grim. In the first quarter, GDP fell 4 per cent over the same period a year ago, and was down 0.4 per cent over the last quarter in 2012.

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The new Portuguese numbers came as Eurostat, the European Union's statistical office, confirmed that the economy of the 17-country euro zone shrank 0.2 per cent in the first quarter over the previous quarter. The economies of nine of the countries, including Portugal, have contracted for at least two successive quarters, the common definition of a recession.

Almost five years after the start of the financial crisis, and two years after Portugal's €78-billion bailout, Portuguese GDP is still shrinking and most of the other numbers are going in the wrong direction, too, as harsh austerity works its dark magic.

Unemployment is running at 18 per cent and the youth jobless rate is more than double that. The public debt is soaring to Italian levels and domestic demand and investment are going in the opposite direction Budget deficit targets have been blown. The government expects the economy to contract 2.3 per cent this year after a 3.2-per-cent fall last year. Its forecast may prove optimistic unless Spain, its biggest trading partner, yanks itself out of deep recession.

A rare bright spot came in April, when Portugal made a tentative return to the debt markets with the sale of 10-year debt. But credit for that little miracle should go to the European Central Bank, whose promise, made last September, to backstop the debt of struggling euro zone countries has pushed yields down substantially in Greece, Italy and Spain. While the Portuguese government insists it will not need a second bailout, it has said it may seek assistance from the ECB's bond-buying program, known as OMT – outright monetary transactions.

The deteriorating economy provides the backdrop for Mr. Ferreira do Amaral's book, which argues that the euro is the new deutschemark – it is too strong for the perennially weak Portuguese economy. Even in the boom years before the 2008 financial and economic collapse, Portugal could barely eke out 1-per-cent annual GDP growth. Since then, its economy has been mired in something close to depression.

The book says Portugal is held prisoner by the euro.

"In 1581 Portugal surrendered to Spain," he writes. "In 1992 it laid itself at the feet of a European Commission increasingly answering to Germany's tune. There was no referendum, the voters were never consulted. The Portuguese elites, who hoped to benefit richly from European Structural Funds, cavalierly handed over our currency – and with it our monetary sovereignty … The Portuguese economy succumbed, choked by the new mark."

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Shaun Richards, an independent economist in Britain who writes for the Mindful Money website, said in a recent post that the book is reviving debate about the wisdom of Portugal's euro membership. Mr. Richards said "it is reasonable to argue that euro membership has brought Portugal bad times after missing out on the good. So Portugal should be debating whether it has been a good idea and whether it is time to cut her losses."

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About the Author
European Columnist

Eric Reguly is the European columnist for The Globe and Mail and is based in Rome. Since 2007, when he moved to Europe, he has primarily covered economic and financial stories, ranging from the euro zone crisis and the bank bailouts to the rise and fall of Russia's oligarchs and the merger of Fiat and Chrysler. More

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