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Europe in the age of Austerity: a contemporary analysis of Portugal's economy since the adoption of the Euro

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Europe in the age of Austerity: a contemporary analysis of Portugal's economy since the adoption of the Euro
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   1 University of Lincoln Europe in the age of austerity, a contemporary analysis of Portugal’s economy since the adoption of the Euro   Being an Independent Study submitted in partial fulfilment of the requirements for the degree of    BA (Honours) International Relations & Politics BY Davide Cesário Pinto Castro Submitted in April 2013   2 Abstract: It is argued by some economist that austerity policies are necessary in order to tackle macro-economic imbalances. However, austerity policies have been, in the European context, damaging not only to national economies but also to the future of a cohesive European territory. The crisis of capital, as evinced by the 2008 financial meltdown, underlined the structural problems of the European Monetary Union (EMU). Three policy instruments of national policymaking were abolished; fiscal policy, the exchange-rate mechanism and monetary policy. The Euro, in its attempt to remove nominal exchange rate fluctuations, was introduced without political integration. This was one of the fundamental flaws of the EMUE, traceable to the Maastricht Treaty. The current austerity measures imposed on peripheral economies are proving to be counter-productive with consecutive GDP contractions, rises in the unemployment levels and unprecedented policies of  privatisation. This dissertation analyses the political consequences of austerity as well as its inefficiency as a measure of combating growing current account imbalances in Portugal. Moreover, it establishes that Portuguese domestic politics is suffering from a crisis of manufacturing consent whereby the only viable solution appears to be the same that initiated the austerity programme two years ago, after negotiations with the Troika. Thus, the future of the Portuguese economy lies in the hands of political and financial elites while social conditions rapidly deteriorate. Lastly, this study stresses that the underlying theoretical models driving the push for austerity are incompatible with democratic processes and principles, and should therefore be re-examined.   3 Contents: 1.   Introduction ……………………………………………………………………………1  2.   Chapter One: Overview …………………………………………………………..…...5      2.1. International environment & region al contextualisation…………………..6      2.2. EMU & Macro- economic imbalances…………………………..…………12  3.   Chapter Two: Challenges & Pressures ……………………………………………….17      3.1. Justifying Austerity…………………………………………………………18      3.2. Territorial Cohesion vs. Market Competitiveness: a European problem……20  4.   Chapter Thre e: Treating the ‘Symptoms’ not the Disease’ …………………………..22      4.1 The political consequences of austerity …….……………………………….22      4.2 Resistance & The power of capital…………………………………………..25  5.   Conclusion ……………………………………………………………………………….29 6.   Bibliography …………………………………………………………………………..…31     4 Acknowledgements: The sincerity with which the following words were thought, if not said but at least written, demonstrate precisely that the completion of this dissertation would have never occurred if not for the support and guidance offered by every member of staff in the School of Social Sciences at the University of Lincoln. I would like to express my deepest gratitude to them universally. Moral relativism aside, every member of staff offered something new which helped to foster not only motivation for discussion but also intellectual rigor. I would also like to thank my parents for their support throughout these three years. Without them, I would not be where I am now. Their sacrifice and willingness to see me succeed, showed me that anything is possible, even learning an entirely new language after arriving in the UK aged 13 and graduating at 20 with course mates. I also would like to thank my brother for the incredibly moral support and belief. Furthermore, I would like to thank my course colleagues for the engaging debate and intellectual stimulation. Without their continued questioning, my critical faculties would not have developed in the same manner, I am sure. University life will be sorely missed. Lastly, I would like to thank my good friend Peter Warwick, who unfortunately is no longer amongst us, for the tremendous impact he had on my life at university. I would have very much liked to graduate alongside him. This dissertation is, above all, in his memory.   5 “No intelligent idea can gain general acceptance unless some stupidity is mixed in with it.”  Fernando Pessoa Introduction The primary argument given in favour of capitalism traditionally had been based on the assumption that it fosters development, which in turn creates the foundations for democratisation; in other words, for the emergence of democratic institutions. This notion, has however, been challenged by the rise of a new model of capitalism that does not entail social liberalisation or the propensity for regime change. This is evinced by the contemporary expression „capitalism with Asian values‟, in other words authoritarian capitalism as practiced in Singapore and China. This model, however flawed and problematic, stands in direct contrast to neo-liberal economic theory which emphasises the necessity of open markets for the internal development of societies. Such arguments were advocated after World War II when neo-liberal economics began to take centre stage in international discussion and academia. This highlights a profound paradox facing the new world order, one based on economic imperatives and widespread belief in market fundamentalism, whilst on the other hand  playing with the social liberal tradition that has accompanied it. Thus, understanding the context in which the European Union operates is to demonstrate the importance of historicism in accounting for the austerity policies of 21 st  century Europe. In Europe, the process of regional integration commenced in order to halt conflict in the area and to proliferate peace and stability after centuries of inter-state conflict; conflict borne out of utilitarian ideals of individual superiority of one state vis-à-vis  another. In other words, utilitarian ideals generated the growth of nationalisms insofar as countries viewed themselves as supreme
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