LISBON (MNI) – Bank of Portugal Governor Carlos Costa said
Wednesday that member countries cannot exit the Eurozone or default on
their debts, and the idea that Greece could quit the single currency is
Costa was the guest of an event called “executive breakfast,”
hosted by the financial daily newspaper Jornal de Negocios.
“The Eurozone was not made to disintegrate. It is necessary to
repair some damages and move forward at the same time,” Costa said. He
added that Europe must find a new path and that it needs the instruments
and willingness to move forward.
“Countries cannot enter into default,” he said, adding that “it is
unthinkable that Greece leaves the euro.” He stressed that Greece must
strengthen its economic model.
When asked if eurbonds were the solution to the Eurozone’s woes,
Costa said Europe must not get fixated on specific measures but should
concentrate on the principles. Eurobonds could be a solution, as could
guarantees, he said. “We have to find a model that tells the markets we
will meet out commitments.”
During the course of the event, the audience was asked to respond
by SMS to the question “will the euro survive?” A tally of responses
among the clearly pre-selected audience members showed that 91.7% said
“yes” and 8.3% said “no.”
In response to that, Costa said, “we have to be proud of the
currency we have. It is very sought after.” He noted that it has been
very stable, highlighting the fact that inflation in the Eurozone has
been just shy of 2% on average in its first 12 years of existence.
With regards to Portugal, Costa said there are no factors
indicating that the country would not be able to meet the targets
required of it under its E78 billion EU-IMF bailout package. He also
noted that the Portuguese economy cannot fill the hole created by the
deficit-cutting requirement, and argued that there must be more spending
He suggested that there were considerable inefficiencies in
Portugal’s public sector. “There is too much spending and not enough
administration,” he said.
Costa stressed that Portugal must consolidate and promote growth at
the same time. He noted that while the Portuguese banking system has
funding problems, it has enough funds for the country’s domestic
He said that banks have the challenge of deciding whether to accept
“bad news today or bad news in the future,” adding that the banks must
ask themselves if they have enough capital for eventual surprises.
Costa offered strong reassurance that whatever happens, Portuguese
bank deposits are guaranteed and he added that is does not share the
doubts that some harbor about the health of the Portuguese financial
The governor also called on private and public sector entities to
sell off assets and for both public and private firms to use
international financing option to relieve the Portuguese banking sector.