One is entitled to ask if the "internal devaluation" will lead to an improvement in Portuguese's competitiveness given the recent euro-appreciation trend.
First, with respect to the euro-appreciation, given the growing importance of intra-euro are trade for Portugal (> 65% of exports), such phenomenon is not expected to severely damage the trade balance.
Secondly, internal devaluation should be coupled with crucial structural reforms (including the labour market) such that we assist to an emergence of new economic activities. In particular the MoU is highly reliant on opening up the nontradable sector to competition to decrease rent-seeking behaviour and encourage profitability in the tradable sector. The emphasis should then be on export-led-growth rather than specific sectors, which may, at the beginning, naturally favour those with strong(-er) comparative advantages.
Thirdly, internal devaluation can take the form of i) planned fiscal devaluation (as suggested/endorsed by our co-blogger Francesco) which basically adjust relative prices by simulating a currency depreciation; ii) a (further) compression of nominal wages (despite not ideal, may still be necessary); iii) a push for increasing competition (resulting in smaller prices of domestically produced goods).
Regardless of how it is going to be implemented, the timing and correct design of an internal devaluation strategy should take into account its social impact and the existing room for manoeuvre (in terms of available measures) in face of the already large fiscal adjustment in progress...
All in all, the above points together with no increases in the minimum wage (as envisaged by the MoU) should contribute to zero growth in unit labour costs (ULC). This combined with sensible projections for trading partners should imply an important cumulative depreciation by 2016.