Here's an excerpt from the Q&A session with the IMF on Portugal:
Q: What went wrong with the adjustment, the fiscal adjustment in Portugal, and specifically with unemployment? How can we turn that around?
A: The unemployment rate in a number of places in Europe, including Portugal, is unacceptably high.
In terms of unemployment, the focus of the (Portuguese adjustment) program has been to put conditions in place in product and labor markets, not just in Portugal but across the euro zone countries, through reforms in these areas and structural reforms in general in order to increase the potential growth of the economy. Some of those are yielding results. Now, obviously, the situation is difficult and is likely to continue to be difficult, but the starting point was extremely difficult, I would say critical. Some of these economies did lose credit market access, and the adjustment was necessary to bring the economies back to health.
So, I think that as we move forward, the emphasis on product and labor market reforms needs to continue. Now, Portugal has done a lot--one should commend them--in terms of labor market reforms. I think there also needs to be greater emphasis in terms of product market reforms, liberalization of the services sector, where there is scope to create jobs and reduce unemployment.
QUESTIONER: You mentioned the unacceptably high unemployment, and I understand that measures are being taken on the fiscal level and then on the reform basis. What should the monetary policy of the ECB be? Can the monetary policy or some kind of pan-European reaction help in that respect?
MR. MOGHADAM: What is clear is that demand in Europe, in the euro zone, is depressed. What is clear is that the output gap--the gap between how fast the economies should grow and what they are growing at--is rather large, and in that sense, monetary policy has to play a role, and indeed monetary policy has played a role. The ECB has been very proactive in terms of conventional and unconventional policies, from LTRO to OMT, and significant reductions in rates to historically low levels. In our view, there is still room for further conventional and unconventional easing. We have been advocating that. And what is positive is that the ECB is very actively considering that.
Q: "How do you see the inequality problem in the euro area?"
MR. MOGHADAM: Obviously, it is an issue. Maybe it is not as big an issue as in the rest of the world for a number of reasons. There are good social protection schemes in place, and whether it is the fuel prices in Ukraine, where we are looking at potentially protecting the lowest 30 percent income households from the impact of the price increases, or the unemployment protection schemes in various places in Europe, there is major social support across European economies.
Now, of course, the fact that unemployment is very high adds to inequality, so a major focus needs to be on reducing unemployment, and here again, I come back to the book. Our emphasis has been on improving the workings of the labor markets and improving the efficiencies of the product markets in order to make job creation more successful in Europe. At the end of the day, that is the best way to reduce inequality, to create jobs.
Source: http://www.imf.org/external/np/tr/2014/tr041114b.htm
Our comments:
What "book" can the IMF be talking about ? The "book" that said that the costs of balance of payments ajdustments should be shared between net exporters and net importers? That "book" seens not to apply to the Eurozone, nor to any monetary and custom union, where unsustainable CAB imbalances are allowed to build until the weaker trading partner is crushed.
With growing divergence and inequalities among the various Eurozone countries, the IMF is focusing on "improving" national labor markets, (read reducing real wages) in the deficit countries ! What about the surplus countries, can they do anything more than pocketing the debt reimbursements made possible by the bailout money?
This shortsighted focus on unilateral adjustments only in the weaker trading partners would be comic, if it weren't so tragic.
Of course, younger and more mobile workers vote with their feet, widening the gap still further. Why remain in Portugal where youth unemployment reaches 40% and the minimum wage, if you can get it, is around 500 euros/month?
Luxembourg here we come!
