Portugal’s
‘contraption’ creaks forward
Stagnant
growth, mountainous debt and a fragile financial sector are stoking
fears of a second bailout.
By PAUL AMES
10/7/16, 1:37 PM CET Updated 10/7/16, 5:53 PM CET
LISBON, Portugal —
A year after losing the election that brought him to power, António
Costa has surprised many by still being comfortably ensconced as
Portugal’s prime minister.
He’s dodged
sanctions from Brussels over his efforts to turn the page on
austerity and avoided rifts with the two hard-left parties that keep
his minority government afloat.
His Socialist Party
(PS) is sitting pretty in opinion polls — three to four points
ahead of its main center-right opposition.
Yet the government
faces major challenges from stagnant growth, mountainous debt and a
fragile financial sector that are stoking fears Portugal could be
forced into a second international bailout.
In elections last
year, Costa was beaten into second place by the incumbent
center-right coalition.
He responded by
striking an unprecedented deal with the Portuguese Communist Party
(PCP) and the radical Left Bloc (BE), forming a left-wing majority in
parliament to back a Socialist government.
Naysayers predicted
the love-in between the traditionally pro-Europe, pro-market PS and
their Euroskeptic, anti-capitalist partners would soon fall apart.
Lisbon still faces a
threat of cuts to its €3.5 billion in annual EU structural funding
The Right dismissed
the alliance as the geringonça, a word that roughly translates as
“contraption” and implies a complex but flimsy mechanism, barely
fit for purpose.
The name has stuck.
Even the Left uses it to refer to the alliance which is currently
locked in negotiations to draft a 2017 budget that Portugal must
present to the European Commission by October 15.
“It’s a
contraption, but a contraption that works,” Costa gleefully told
parliament earlier this year.
The PM is bullish
about his ability to hold the alliance together, balancing leftist
demands for a faster rollback of austerity with eurozone budget
commitments and the need to revive the economy.
“The majority in
parliament has proved itself over the year to be sufficiently solid,
consistent and coherent to make this governing solution viable,”
Costa said in an interview this week with the daily Público. “We’ve
all understood that, with pragmatism, we can do things together even
with our different identities.”
His task, however,
is daunting.
Although the
European Commission in July backed away from imposing fines over
missed budget-deficit targets, Lisbon still faces a threat of cuts to
its €3.5 billion in annual EU structural funding if there’s
further slippage.
‘Alternative to
capitalism’
At the beginning of
the year, the government was forecasting 1.8 percent 2016 economic
growth, now Costa admits it will “not be much above 1 percent.”
The reasons include the impact on Portuguese exports of slowdowns in
markets like Brazil and Angola.
Then there’s the
banks. Portugal’s financial sector is burdened with over €30
billion in bad loans, holding banks back from investment needed to
spur the economy.
Over the summer, the
government had to paste together a €5 billion recapitalization plan
to firm up the biggest lender, state-owned Caixa Geral de Depósitos.
The then
third-largest bank, Banco Espírito Santo, went to the wall in 2014
and the government’s still struggling to find a buyer for its
much-reduced successor Novo Banco.
Last year’s
deficit overshoot was largely due to a €2.2 billion rescue of
another ailing bank, Banif.
Costa remains
sanguine as he heads off to China on Saturday for a five-day visit to
whip up investment.
He insists Portugal
will “comfortably” bring this year’s budget deficit below the
Brussels-mandated deficit target of 2.5 percent of the gross domestic
product. Although an IMF report made public Wednesday forecast
deficits of 3 percent this year and next.
The government is
aiming at below 2 percent next year, even with far-left demands for
increases in pensions, wages and social services spending. Tax
increases to hit the better-off may be part of his solution,
including sales taxes on luxury items.
A possible new
wealth tax on owners of property worth over €500,000 was announced
last month by Mariana Mortágua, an influential Left Bloc lawmaker,
who media commentators — only half-jokingly — refer to as the
country’s real finance minister.
Mortágua’s
apparent announcement of government policy was combined with an
appeal to the Socialists to seek “an alternative to this capitalist
system” and “lose any shame about claiming back from those who
accumulate money.”
Her words triggered
a backlash from centrist Socialists long queasy over the far-left
alliance.
“It’s bad for
the country,” Francisco Assis, a PS member of the European
Parliament told the weekly Expresso newspaper. “It’s leading to
paralysis. Any reform, no matter how modest is opposed, by the BE and
the PCP. They are closed and conservative parties.”
Bailout worries
Outsiders are also
concerned by the lack of reforms to free up the economy.
An IMF report last
month complained that failure to reform was “a significant factor
in the slowdown of investment.” It urged the government to overhaul
labor markets, the judiciary and public administration and warned
against any backsliding on the reforms undertaken by the previous
administration.
“The good news is
that popular support for the Socialist Party appears to be increasing
quite steadily, this bolsters their hand in the negotiations with the
Communists and the far left on having a responsible budget,” says
Fergus McCormick, chief economist at the Toronto-based credit rating
agency DBRS. “They are largely on track to make the deficit target
for this year.”
“The worry is that
Portugal will need a second bailout. I can’t tell you what the
probability is, but it is higher than zero” — European
Commissioner Günther Oettinger
“Our concern is
more with the underlying problems holding back growth,” he told
POLITICO, warning that much-needed reforms are being “constrained
by politics.”
McCormick’s views
matter. DBRS is alone among the four major international agencies
still giving Portuguese bonds an investment rating.
If its next review
on October 21 includes a downgrade to junk status, Portugal could be
cut off from European Central Bank funding, forcing it to seek a
second bailout that would likely come with even harsher terms than
those imposed in return for the €78 billion EU/IMF rescue in 2011.
That prospect was
raised this week by European Commissioner Günther Oettinger.
“The worry is that
Portugal will need a second bailout. I can’t tell you what the
probability is, but it is higher than zero,” Oettinger told a group
of Portuguese lawmakers Monday. “I can imagine a second program to
finance your budget.”
His warning provoked
an angry rebuke from the government.
“Politicians —
and that includes members of the European Commission — must use
common sense and responsibility when they speak,” fumed Foreign
Minister Augusto Santos Silva. “If we don’t know what we’re
talking about, we shouldn’t comment.”
Portugal’s
European Commissioner Carlos Moedas has contradicted his German
colleague, telling a conference in Madrid Thursday that a bailout “is
not on the horizon for any country in Europe and it does not exist at
all in Portugal.” Analysts are divided, with the ratings agency
Moody’s saying last month the likelihood of another bailout was
low, while Eurasia Group warned such a scenario was “entirely
conceivable.”
Costa dismisses
bailout talk is “nonsensical,” insisting his government
‘contraption’ is guiding the country along a post-austerity path
to recovery.
He must also be
aware, however, that in 2011 the last Socialist prime minister José
Socrates was fervently denying the country needed a bailout just 48
hours before markets forced him to request one.
Authors:
Paul Ames
Sem comentários:
Enviar um comentário