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Portugal ‘should leave euro’: best-selling economist

A Portuguese economist, whose book “Why We Should Leave the Euro” has become a rapid best-seller, says it is only a matter of time until his crisis-wracked country leaves the troubled currency.

“Sooner or later, Portugal will be faced with an exit from the euro. It is inevitable,” Joao Ferreira do Amaral told AFP in an interview.

His book, which hit the stands in April, has flown off the shelves and is now one of the best-selling books in Portugal, as the euro crisis cripples growth and pushes up unemployment.

“This exit should happen when the eurozone is stabilised, in two or three years” and should take place “in an orderly fashion,” he said.

He said the country should return to its old currency, the escudo, in coordination with “European governments, Brussels and the European Central Bank, which should continue to finance Portuguese banks initially.”

Joao Ferreira do Amaral is already a well-known economist in the country, having argued against the adoption of the euro in 1999 after Portugal joined the European Union in 1986.

“I saw that the Portuguese economy would be inevitably affected by joining this currency,” said the 65-year-old, now retired after teaching at several universities in the country.

In his book, he attacks the Portuguese parliament for approving the adoption of the euro “without a referendum” and by so doing, “giving up an essential instrument of its political autonomy: printing money.”

“The euro is a strong currency. But our economic structure is not very competitive. In these conditions, the economy cannot grow,” he judged.

The situation has gotten worse, according to the economist, since Portugal submitted to an international financial assistance programme worth 78-billion-euro ($101 bn) in exchange for drastic austerity measures to clean up its public finances.

Many blame the programme, demanded by the European Union, European Central Bank and International Monetary Fund, for making the recession worse and pushing up unemployment to 18 percent.

“We have reached the limit” of what austerity can achieve in terms of improving the public finances, he said.

The government is now in a bind: “If it raises taxes, its revenue will drop. If it cuts public services, the recession will get worse and the deficit will deepen.”

For the economist, the path to salvation is clear: investment and devaluation.

“The country needs investment. The best way to encourage investors is to devalue the currency,” he said.

The inflationary dangers that would likely arise from such a move would not be all bad, he judged.

“Inflation does not necessarily mean a drop in living standards … it would be compensated by growth,” he predicted.

Creditor countries would also likely be paid off quicker, as Portugal would be in a better position to pay off its debt, expected to hit 132 percent of economic output next year, according to the OECD.

Ferreira do Amaral acknowledged that he is swimming against the tide of public opinion for the moment, with a broad majority of Portuguese in favour of keeping the euro.

But he noted with satisfaction that his book has enjoyed a “positive” reception and says that his view is starting to gain ground across the crisis-battered 17-country eurozone.

“You can see that there is a greater openness to debate this question.

“A taboo has been broken and not just here in Portugal.”