Communist trade unions, which put on parades where portraits of Che Guevara and socialist slogans are brandished, are generally not seen in the company of conservatives. In Portugal, nevertheless, that’s what’s happening these days.

When asked what’s behind Portugal’s financial woes, the Lisbon comrades of the CGTP (General Federation of Portuguese Workers) and the Conservative deputies of the PSD party have the same reply: it’s all because of the euro.

Before the introduction of the single currency in 2002, the country could get through its rough financial patches by devaluing its escudo. Devaluation lowered the cost of some of the debt servicing and ratcheted up the country's international competitiveness by lowering export prices for Portuguese products.

Those days are gone, and the situation in Portugal is finally raising the crucial question: can a single currency actually work in such an economically diverse community? In Greece, the word was that budget manipulations were behind the debacle. In Ireland, the banks are being singled out. In Portugal, none of these prevarications have been put forward. The public, the government and the banks are too deeply in debt in relation to their economic output. For the last ten years the economy has hardly grown. The euro brought interest rates down, which led to the explosion of credit – and to today’s bailout plan. Seen in this light, the Portuguese will be still dedicating plenty of fados to their beloved escudo yet.

The political elites, however, are still clinging to the euro. The problem, at bottom, lies in the economic and social imbalances. The rich industrialised countries like Germany and Austria find themselves competing with countries like Portugal and Greece, which export very little, in the same market. So far, this has not gone well. If we want things to change, we must change our approach.

First, the austerity programmes imposed by the European Union and the International Monetary Fund should be revised. The measures introduced in Greece and Ireland have been widening the gaps, plunging the two countries into recession just as they needed to grow. Portugal has seen a tentative upswing thanks to more encouraging conditions. However, the country will not get its economy to grow through budget cuts and increased tax burdens. A recession is looming.

The short-term measures, however, will not be enough. For now, the policy of the European Central Bank (ECB) — in accordance with its mission — can be summarised as an attempt to keep inflation under control. But that falls short; it was merely a lack of oversight, after all, that let out the credit boom so fatal to Spain and Portugal. Proposals like those of the American economist Roman Frydman, calling for stronger ECB intervention to rein in the granting of credit during booms, have so far been ignored.

These issues will certainly be addressed under the new EU competitiveness pact. But that pact remains too evasive and one-sided. It penalises states with high deficits while urging those with export surpluses, such as Germany, to do even more – by stimulating domestic demand, for example.

The good news is that there’s no shortage of common sense ideas. The bad news is that Europe seems to be taking a new direction now, as evidenced by the success at the voting booths of the "True Finns".