Portugal faces uphill struggle towards EMU

Date: 25/04/1996

By Fernando de Sousa

THE Portuguese private television station SIC recently received very disappointing answers when it asked members of the public what they knew about the single European currency.

For most, the Euro seemed more like an entity from outer space than a currency which EU leaders hope will be in everyone's pockets before very long.

In this respect, however, Portugal is not so very different from many of its European partners. And, as in those countries, the situation leaves plenty of room for misgivings.

The starting date for EMU and the effect of the convergence criteria on the economy are the main causes of concern.

Like almost all the other candidates for entry into the single-currency club, the mainstream political community insists Portugal must be among the first group of countries to qualify for EMU, arguing that to remain outside would have a serious impact on the country's economic prospects.

Portugal has, however, prepared itself for the possibility that it might not qualify in the first round by supporting the creation of a ERM Mark II as a framework for the relationship between the Euro and the currencies of the countries which do not join EMU in 1999.

Portuguese Finance Minister Sousa Franco does not see this development as the formalisation of a two-speed Europe, preferring to stress the importance of reaching the intended aim. “It is like driving on a motorway. We drive at different speeds towards the same place. If everybody drove at the same speed, perhaps we would have traffic jams or accidents,” he says.

The Portuguese authorities also have an eye on developments in Madrid. If Spain becomes an 'in' country in 1999 and Portugal remains an 'out', that would cause difficulties for the Portuguese economy because of its close links with its neighbour.

But the Socialist government of António Guterres faces a rough ride in its efforts to respect the convergence criteria, with

Eurosceptics using this prospect to criticise the way his administration is leading the country towards EMU.

Although ministers believe Portugal is on target to meet the criteria, it will not be easy. The main problem remains the budget deficit, but unemployment is also a key concern.

Guterres has been working hard to persuade his European partners of the need for practical and efficient measures to promote the labour market. But he admitted during the recent Turin summit that “not every member state is completely aware of the seriousness of the situation”.

There is a general feeling in the country that only by producing concrete results on the job creation front will it be possible to guarantee popular support for further EU integration.

The Portuguese debate on the IGC has yet to start in earnest. The future balance of power between 'small' and 'big' countries in the Union is the main item under discussion, but it is still an embryonic and somewhat emotional debate.

Socialists and Social Democrats are certain about the benefits of EU membership, while the Partido Popular on the right and the Communists remain doubtful - at least without more safeguards for Portuguese interests.

As in other member states, there is also a lack of understanding about the consequences of enlargement to the East.

The future of the EU funding, which has played such a key role in Portugal's development during its first EC/EU decade, is already a source of concern. As one of the poorest member states, with a GDP per capita some 64&percent; of the Union average, Portugal has qualified for large tranches of EU money to fund development projects over the past ten years. But when some of the Eastern European countries join the EU, Lisbon will face much stronger competition for funding.

The business community is, however, trying to make the best of the situation by arguing that Central and Eastern Europe offers the prospect of enormous potential gains for industry.