As we have all seen lately there have been a lot of areas within the EU that have been struggling to repay debts and get their deficits in order with what Germany has deemed the acceptable rate of 3% of total GDP. With this being said, some countries that have been experiencing these crisis have been doing so due to poor judgement and bad practices. According to this article from the Economist this has not been the case with Portugal. Although they are currently reaching 19% unemployment and their debt to GDP ratio is hovering around 120%, this hasn't been caused by reasons similar to those of Greece, Cyprus, or Ireland. The country has simply been under performing.
For the first time in a while the country has a trade surplus and the account balance is improving. The main issue is that it is not enough to right the ship. It is also said that the countries exports are not strong enough should countries like Germany and France "tighten their belts"or fall back into recession.
With these small countries, with comparatively weak exports, that have been struggling to pay back debt and get out of recession thinking about dropping the euro, could this lead to the end of the Euro Monetary Union? It seems that this seemingly rapid expansion of the EU since its inception has possibly been ill timed as it has created so many "piggy backing" countries with little development. For portugal, its exports mainly consist of agriculture, wine, shoes, plastics, chemicals, metals, and some oil; it would seem that these countries lack that niche industry in which they can specialize and develop. If you look at the US there are a lot of states that have their own Niche's, Michigan has auto, California has wine, agriculture, and silicon valley. Colorado is based around Tourism, Military training, agriculture.
So with all of this being said, perhaps the planning of the EU needed to be based around countries establishing their own niche's with in the european community and then getting help from other EU nations to create economies of scale for these industries. Now it could be too late and might lead to a flight away from the Euro by these smaller countries. Would this improve the current condition of the Euro or lead to its total collapse potentially ruining the economies of all countries tied to it?
I guess only time will tell. Would love some other opinions on this as it is really interesting to think about what might happen to the Euro.
Saying that Portugal should find a niche or leave the EU seems to be similar to saying that Wyoming should find a niche or leave the Union. Although Portugal may be under-performing, I think its presence in the EU is still of great value. By participating in the EEA and the EMU, Portugal has opened up a market of millions of consumers to other European goods and services. This will help those countries to reach economies and make people better off. The EU need not worry about adding economies to fill niche industries. Rather, expanding the market and developing closer ties with less costs should be the aim.
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ReplyDeleteI agree with Chris that even though Portugal may currently be under-performing the idea of isolating it into it's own niche wouldn't aid in it's recovery. An article posted on April 12th by Yahoo titled "EU to extend loan repayments for Ireland, Portugal ", notes that the EU has no plans to get rid of the under-performing members. The article discusses how the finance ministers of all 27 EU countries agreed the past Friday to grant Ireland and Portugal seven more years to pay their bailout loans. They hope this helps by easing the burden on their economies and thus paving the way for a quicker return to sustainable growth. Furthermore, the financial ministers also approved a $13 billion loan package to stop Cyprus from sliding into bankruptcy. Clearly all of the countries in the EU are tied economically. Therefore, the interests of one countries stability directly impacts that of another. Having the less performing countries establish their own niche would not increase their economic performance.
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