“The British will realize that they were chasing an illusion”

The President of the Bank of Portugal, Carlos Costa, stressed that the United Kingdom "is a piece of the puzzle that will be missing" from the European Union.

In a conversation with the best students of economics at national level, Carlos Costa, president of the Bank of Portugal, addressed the hot topics of the moment, such as the case of Brexit, the important role of the European Central Bank in the European Union and, finally, the skepticism surrounding the common currency.

The Portuguese governor began by revealing that the departure of the United Kingdom will, in fact, affect the most important organization in Europe, pointing out that the “EU is built like a kind of puzzle of successive additions” and not in the opposite direction.

“On Brexit, let’s be very clear. A 27-member unit is smaller than a 28. Not only in terms of the number of members but also in terms of economic weight, demographic weight and density of international relations. The EU is built on this puzzle of successive additions. So it is a piece of the puzzle that will be missing,” he stressed.

Despite the decision taken three years ago in the United Kingdom through a referendum, the president of the Bank of Portugal believes that the British will eventually realize that Brexit was just an “illusion”.

“What we have to hope for, is the ability to preserve the relationship between the United Kingdom and the European Union. We hope that globalization will impose itself on Britain, that the British will eventually realize that they were chasing an illusion. I hope this will also serve as a way for them to realize that they have more in common with Europeans than they think,” the governor said.

 

“Sovereignty is not built on isolation, but on community and sharing. One is much more sovereign by sharing sovereignty than by imprisoning oneself in it. This will take time and involves a catharsis,” he added.

When asked about the role of the European Central Bank in today’s European society, the president noted that European citizens are currently benefiting from “an effort by the ECB to avoid deflation and also a possible deep economic recession”.

The President deepened the topic by highlighting the creation of the Banking Union by the European Central Bank, in 2014, as one of the EU’s greatest successes in recent years.

The costs of an exit from the euro are so high that there is a greater probability of new entrants to the common currency than exits.”

We are benefiting from the ECB’s effort because it has created a Banking Union, which in my mind has been a success and has not been sufficiently underlined, because it’s difficult to set up a supervisory mechanism and all the other elements that are around it in just five years. On the other hand, it’s also difficult to do this as the European Central Bank”, explained the President.

For Europe’s forecast, Carlos Costa expects that “once the macroeconomic and financial situation has stabilised, the conditions are in place for a return to a new normality in financial and price terms”, however, he also warns that “new normality no longer depends on the European Central Bank. The monetary policy has done everything that had to be done, and now developments depend on the stimulation of aggregate demand by budgetary policy”.

Continuing to talk about the future, the president of the Bank of Portugal could not end his speech without talking about the Euro, who turned 20 years old in the beginning of last January, clarifying that EU countries are now looking at the common currency without a sense of distrust. In his view, “the costs of an exit from the euro are so high that there is a greater probability of new entrants to the common currency than exits”.