I am extremely pleased to preside at the opening of the 4th Conference of National Economists.

Firstly, due to the sharing of professional, intellectual and academic interests with the large majority of this audience.

But also for the opportunity to attend the presentation of the Carreira Prizes to Dr. Murteira Nabo, Dr. Norberto Pilar and Dr. António de Almeida, all of whom I heartily congratulate.

This Conference is, on the one hand, a special occasion, due to the very difficult situation occurring in Portugal. We are living at a time when much is demanded from the talent and capabilities of our economists.

During a recent audience granted to the Chairman of the Society of Economists, I had the occasion to advise him of the vision I have as to the increased responsibility that the Society assumes in the current historical context. Economists are very particularly expected to contribute with their reflection to the debate on the execution of the Financial Aid Programme and to clarify and bring awareness to the political decision makers and to the Portuguese society concerning the challenges and duties that Portugal is facing.

It is essential that, with their knowledge and experience, economists provide their contribution in order that the Portuguese obtain more adequate information about the current situation of their Country, the causes of the crisis we are living and the perspectives for the future that justify the sacrifices they now have to face.

In times of uncertainty, when the results of the effort requested from the Portuguese are not always tangible or immediate, it is the duty of the economists to be rigorous messengers of the progress achieved, of the difficulties that still await us or of the need to rethink the trajectory followed.

Hope must not be mistaken for blind optimism, neither with the simple acceptance of illusory solutions. The time we are living in is a time for realism. We all know that we are facing a lengthy path with great obstacles, such that alarmism, disinformation or the distortion of reality will not contribute one jot to the development of the confidence we so deeply require for economic growth and to attract foreign investment.

Ladies and Gentlemen,

This Conference occurs at a time when the Country lives through one of the deepest crisis in the history of our democracy.

The Portuguese are faced with the perspective of a deep economic recession, unemployment at unprecedented levels, a pronounced decline in family incomes and a great difficulty for companies to obtain their needs of financing.

At the opening of the 2nd Conference of Economists, in October 2007, before the appearance of the crisis in the international financial system, I stated: “Portugal has accumulated several unbalances (...) that are not sustainable and have to be resolved; otherwise these will become not just a short term issue but, above all, a heavy obstacle to future development”.

And I added: “The excessive external deficit of the Portuguese economy is a reason for concern, since it absorbs essential resources for economic growth and may become the source of grievous constraints to the normal functioning of the economy”.

But my concern with respect to the consequences of the accumulation of external deficits and of external indebtedness came from a far earlier period.

In May 2003, thus more than eight years previously – I wrote, and quote:

“A country, even within a unified monetary area, cannot become limitlessly indebted. In the medium or long term, a continued external account deficit will manifest itself through an increase in risk premiums, credit rationing or the transfer of national assets into foreign ownership, as we have anyway been viewing in Portugal. Adjustment is thus inevitable, that is, expenditure by families, companies and State must be contained. The adjustment will be heavier and more grievous the more the external indebtedness has been directed towards consumer expansion or to low profitability investments. Portugal is today an example of how a continued external account deficit becomes a restriction to a Country’s sustainable growth, even if the Country is party to a monetary union”.

Now, in 2011, this scenario is much more evident than it was in 2003.

In my recent address to the European University Institute in Florence, I tried to extract several lessons from the Euro crisis, and that this is based upon a deficient scrutiny by the European institutions. In my belief, the Euro crisis would have occurred even without the crisis in the international financial system, which had its origin in the United States of America, with the “sub prime” issue and the Lehman Brothers bankruptcy. The turbulence in the United States only accelerated a process that would shortly occur in Europe.

The same may be said of the crisis to which Portugal has been driven, since its roots derive primarily from the loss in competitiveness, from the unbalance in its external accounts and from the Country’s excessive foreign indebtedness. An indebtedness that, in net terms, was less than 8% of GNP at the end of 1995, rising to 40% in 2000 and to approximately 107% in 2010.

The last few years evidently and even dramatically expounded the unbalances of the Portuguese economy and the lack of sustainability of the path that was being followed, to which I had often called the attention of the political decision makers and of the Portuguese.

The risk for the collapse of the financing of the economy made inevitable establishing a financial aid agreement, concluded by the previous government in May ultimo.

Now, the path that better guarantees the defence of the superior national interest is that of complying with the commitments assumed by Portugal, notwithstanding their harshness and the demanding conditions imposed on us. Adding to which we have to redouble our efforts in the defence of the Economic and Monetary Union.

It is true that the programme of financial aid contains difficulties and sacrifices that cannot be ignored and that raise several issues. As a starter, the query whether the sacrifices that are being demanded from the Portuguese are worth while and if they lead us to a safe harbour.

The answer to these queries is not unconditional: doubts naturally subsist as to the results arising from the path we are currently treading, since a great deal of the success does not just depend only upon us. It depends upon the international environment and from the capability demonstrated by the European Union to resolve the financial crisis of the Euro zone.

It must however be recognized that, without correcting the budgetary imbalance there will be neither sustained economic growth nor job creation: thus a programme to answer that imbalance would always be required. But, as is well known, a necessary condition may not be sufficient, that is, budgetary austerity, on its own, does not guarantee that, in the future, the Country will find itself on a path of economic growth and of improvement in the quality of life.

In this context, and in order that the programme is successful, there are two situations that must be avoided at all costs and that were included in my address to the Country in May of this year concerning the financial aid agreement.

Firstly, it is necessary to avoid that a feeling arises in Portuguese society that the distribution of sacrifices is unfair, that less is being demanded from those who have a greater contributory capacity than many others with lower income levels.

This is an issue that the political decision makers must look into with the greatest of concerns. Injustices sow disbelief in the institutions and undermine national cohesion.

I recall statements in my empowerment speech as President of the Republic in March of this year:

“We require a humane policy, guided towards the people themselves, for entire families that are facing absolutely inadmissible privations in a 21st century European country. We require a firm combat against the inequalities and the poverty that corrode our unity as a people. There are limits to the sacrifices that can be demanded from the common citizen”.

In addition to fairness in the sharing of sacrifices there is a second duty. The existence of an idea that what is being carried out to energize the economy and to fight unemployment is not sufficient must be avoided at all costs.

The need to comply with the budgetary targets is unequivocal, in the terms of the financial aid programme we subscribed.

However, the emphasis on the consolidation of the public accounts must mot affect carrying out the reforms and the creation of the structures included in the programme itself, as well as other measures that envisage the strengthening of the competitive position of national companies and the increase in the potential growth rate of the Portuguese economy.

The recent experience – specifically at international level – confirms that adjustment programmes cannot be confined to the budgetary area. Adjustments based upon a recessive path are unsustainable. It is thus crucial to coordinate the budgetary dimension with the measures intended to create conditions that engender growth.

It was for this reason that, in the address I delivered last May, following the signature of the financial aid programme, I particularly underlined the importance of achieving, during the following years, an increase in national savings (families, companies and State), in order to lessen the need for recourse to external financing. In a context where families’ available income has been decreasing, it is the State’s duty to contribute towards such an increase in savings.

A second objective pointed out as crucial was the increase in the production of transactional goods, that would allow reducing our external deficit, and that would also include the lessening of the incentives towards the excessive growth of the sectors of non transactional goods that has marked our economy in the last few years.

This is an objective that, at the present time, only the private sector may carry out. And here lies the importance of ensuring the recognition of companies and of the values created by them. These are the companies that are able to energize the export market, break the decline in investment, create new employment and provide hope for a generation of well trained young people that are currently unable to enter the labour market.

It is imperative to again launch private investment and, especially, to capture quality foreign investment.

In line with the official data foreseen for 2011, investment in Portugal should decrease to real values lower than those evinced in 1995. It is fundamental that this situation be corrected, since what may be at risk is the installed capacity to guarantee export growth.

At a time when there are great difficulties in access to credit, it is crucial that investment has an undisputable quality, and that it ensures a high rate of return for the Portuguese economy.

Where this is concerned it is necessary that the funds of the National Strategic Reference Framework (QREN) be reoriented, in agreement with the European Commission, in order to favour the development of competitiveness.

The increase of investment in Portugal demands an effort to improve the external image of our Country. It is urgent to combat the negative perception that some foreign investors have of the situation in Portugal. This requires, first of all, the effective compliance with our obligations, but also an international enlightening campaign and a credible and effective economic diplomacy.

With this purpose in mind I decided to promote this year one more meeting of the Globalization Committee, which will be dedicated to the debate over the challenges and opportunities that are placed on our Country in the global world and the means to improve the external visibility of the Portuguese economy. The meeting of the Committee will include the participation of Portuguese nationals who are highly placed executive officers in international companies, residing in the Diaspora, and chairmen of large corporations in the Portuguese speaking economic environment.

The difficulty in financing economic activity, as we are all aware, is one of the most grievous issues faced by the Country, placing at risk the efforts to counter the recessive climate underlined by budgetary consolidation.

There are indications that the deleveraging of the financial system is being carried out at too fast a rate, grievously limiting companies’ access to credit and placing emphasis on the conditions for a deep recession that will be difficult to overcome.

It is indispensable, for this reason, to diminish the exposure of the national banking system to the State entrepreneurial sector, freeing more funds for the remaining Portuguese entrepreneurial sector and, in particular, to the small and medium sized companies whose vocation is the production of transactional goods and for the creation of employment.

Ladies and Gentlemen,

Some voices have suggested, mainly with regard to Greece that, leaving the Euro zone is a solution for the competitiveness problems of the member States and for the financing difficulties they are facing.

I have already severally referred to the consequences, dramatic for a southern European country, of such a decision. Today, since we are in a Conference of economists, I recall what, concerning such a hypothesis, has been stated by a known specialist in European affairs, Jean Pisani-Ferry:

1) The foreign exchange markets would impose an enormous depreciation in the new national currency, giving rise to an increase in the prices of imported goods, leading to the impoverishment of consumers and to the lack of capacity of companies to purchase plant and intermediate goods required for their business. It is unrealistic to believe that the country in question, suffering from a deficit in credibility, could control the devaluation of its currency.

2) From the financial point of view, currency depreciation signifies a serious increase in the value of debts, owed by the State, by banks, by companies and by private individuals to non residents, which would continue stated in euros, and which would lead to the bankruptcy of thousands of economic agents and to a pronounced deterioration of the national wealth.

3) It is merely fiction to think that the transition to the new currency would be carried out swiftly and in an orderly manner, overnight, so to speak, and a run on the banks would take place to raise deposits and to transfer capital to other countries, thus leading to the collapse of the financial system.

Pisani-Ferry concludes that leaving the Euro zone would lead to a chaotic situation, would be economically destructive, financially ruinous and socially devastating. I would add that in all probability, chaos would extend to politics.

It is equally worth while to add a legal obstacle: the European Treaty foresees the entrance but not the exit of a State from the Euro zone.

Ladies and Gentlemen,

There is still a political side to the crisis that Portugal is crossing that I want to underline, since this has internationally been very positively appraised.

The carrying out of the programme of adjustment in Portugal has benefited from a wide political consensus, the relevance of which must be specially emphasized. An essential condition for Portugal to maintain this favourable environment includes reconciling the effective carrying out of the programme with social, growth and employment creation concerns. However, preserving this so important political asset will greatly depend upon the political parties keeping to an especially cooperating and responsible attitude. In this sense, the Government must recognize the importance to permanently maintain openness and drive in the dialogue with the opposition and with the social partners. A responsible although demanding attitude is also expected from the opposition, that will help the country and the society to conquer the great challenges it is now facing.

I believe a wide understanding exists that only a deep reform of the State will be able to guarantee, in the medium term, its financial sustainability. Such a State reform has to cover all the areas it funds, including not just the central administration, but also the regional and local authorities and the respective entrepreneurial sectors.

This reform will demand a new political consensus within Portuguese society, transcending the responsibility of the current Government and requiring everyone’s commitment, including that of the opposition parties, the representatives of the regional and local powers, the higher bodies of the public administration, and the main agents of the world of labour and of the Health, Education and Justice sectors.

How each of them will assume his responsibilities in the current moment will be determining for everyone’s future. Nobody has the right to mortgage the welfare of the coming generations.

Cherished Economists,

The Country expects much from you. I hope that this Conference will constitute a deep and serene reflection of the times we are going through. And I hope that this reflection be used to advantage by all politicians, and economic and social agents, in order that Portugal finds a new development trajectory, within a framework of justice and solidarity, but equally of courage and hope.

Thank you very much.