Why
Portugal has become an oasis of stability
Portugal
bucks Europe’s populist trend, but financial fragility remains a
threat.
By PAUL
AMES 12/1/16, 5:35 AM CET Updated 12/1/16, 7:55 AM CET
LISBON — Any
celebrations of António Costa‘s first anniversary as Portugal’s
prime minister were muted by the announcement this week that the man
Costa spent five months persuading to lead Portugal’s biggest bank
had resigned, plunging into doubt the government’s efforts to shore
up the country’s shaky financial system.
Yet compared to the
existential threats facing so many of Europe’s leaders and
mainstream political forces, Portugal’s Socialist prime minister
looks to be sitting pretty.
A poll published
Friday gave Costa an 81 percent approval rating, up from 47 percent
in December 2015. Not bad compared to fellow center-left leaders such
as Italy’s Prime Minister Matteo Renzi, who’s slipped to around
30 percent, and French President François Hollande, languishing
around 4 percent.
“We’ve been able
to keep all our promises to the Portuguese people,” Costa said
Tuesday after parliament approved his budget for 2017. “We’ve
turned the page on austerity … we’ve shown an alternative is
possible and we’ll keep building that alternative.”
Far-right populism,
surging across Europe, is largely absent in Portugal, and the
government has been stealing support from the two far-left parties
who back the minority government in parliament. Both the Portuguese
Communist Party on 6 percent and the Left Bloc on 8 percent have
dropped a couple of points since the election.
“Voters
who really didn’t trust António Costa a year ago have become
rather attached to him” — Nuno Garoupa of Lisbon’s
Católica Global School of Law
Portugal’s
Socialist Party would get 43 percent of the vote if elections were
held now, according to the poll published in the Diário da Notícias
newspaper.
Portugal’s
aversion to far-right politics can be explained in part by the
lasting legacy of dictator António Oliveira Salazar, whose harsh
regime lasted for over four decades until toppled by a 1974
revolution. Portugal has also not experienced a recent influx of
refugees or a sudden surge of immigrants, like those that fueled the
growth of the far-right elsewhere. Its immigrant communities, mainly
from Brazil, Portuguese-speaking Africa and Eastern European
countries such as Ukraine and Romania, are comparatively well
integrated.
Radical fears
unfounded
Portugal’s
emergence as an oasis of stability in troubled Europe has surprised
many who feared Costa’s coalition deal with the radical left would
trigger a clash with Lisbon’s commitment to eurozone fiscal rules.
So far he’s
managed to juggle competing demands. The government has raised
pensions, reversed public sector salary cuts, halted planned
privatizations and is phasing out austerity era taxes, while — just
about — avoiding punishment from Brussels.
Costa’s been
helped by positive economic news. After years of lagging behind,
Portugal’s economy grew faster than any other in the European Union
over the third quarter, according to Eurostat data released November
15. Unemployment is at a five-year low. Exports and investment are
recovering.
Meanwhile, booming
tourism, the national soccer team’s Euro 2016 victory and former
Prime Minister António Guterres’ ascension to secretary-general of
the United Nations have combined to lift the gloom clouding the
national mood since the eurozone crisis hit in 2009.
Even the landslide
election victory of the opposition-backed center-right candidate in
Portugal’s presidential elections in January has played into
Costa’s hands.
The hyperactive,
crowd-hugging former TV pundit President Marcelo Rebelo de Sousa has
a largely ceremonial role, but he is wildly popular and has developed
a back-slapping cohabitation with his Socialist prime minister that
has boosted Costa’s centrist credentials.
“Voters who really
didn’t trust António Costa a year ago have become rather attached
to him,” said Nuno Garoupa of Lisbon’s Católica Global School of
Law. “Centrist voters who didn’t like the way he campaigned, or
his coalition with the Communists and the Bloc, are now prepared to
say that António Costa has qualities.”
In contrast, the
opposition Social Democratic Party (PSD) has looked rudderless since
Costa outmaneuvered it by building the left-wing coalition that came
to power last year. The party has been unable to shed its association
with much-maligned austerity and former Prime Minister Pedro Passos
Coelho has the lowest popularity rating of any party leader.
There are murmurings
of revolt against him within the party that are sure to grow louder
if the polls don’t show a change ahead of municipal elections
across the country next September.
Some in the party,
however, believe economic pressures mean Costa’s popularity will be
short lived. “The prime minister is painting an illusionary picture
of the real state of the country,” said Hugo Soares, deputy leader
of the PSD faction in parliament. “The government has no strategy.
They are making up policy as they go along. There are no structural
reforms at all. The economy is facing stagnation.”
The PSD scored a
rare success last week when it temporarily teamed up with the
government’s radical Left Bloc supporters to secure a parliamentary
demand that top management at the state-owned Caixa Geral de
Depósitos bank disclose their assets.
That helped trigger
the resignation of Chief Executive António Domingues and other CGD
board members. Domingues was appointed by Costa in August after
months of negotiations to lead a restructuring of Portugal’s
biggest lender. The resignations have plunged into doubt a €5
billion recapitalization plan for the troubled bank that’s seen as
essential to efforts to stabilize the country’s fragile financial
sector.
The frailty of its
banking sector leaves Portugal vulnerable to external shocks.
Analysts are
worried. Canada’s DBRS ratings agency warned it was considering a
downgrade of the banking group. It said the resignations could
undermine the restructuring plan, by posing “further challenges for
the group to return to profitability, reduce asset quality problems
and improve investor confidence.”
The frailty of its
banking sector leaves Portugal vulnerable to external shocks. Its
debt at 129 percent of gross domestic product — around €232
billion — is the eurozone’s third highest after Greece and Italy.
Even if Costa’s government hits its 1.5 percent growth target for
next year, it will do little to lighten the burden.
Doubts about the
European economy, heightened by Brexit, the impact of the incoming
Donald Trump administration in the U.S. and Sunday’s referendum in
Italy, have been pushing up the interest Portugal must pay on its
debts. That’s a worrying echo of the crisis that pushed the country
into an international bailout in 2011.
Last week, Costa
claimed to have restored the country to “tranquility and
normality.”
Unless he can head
off the financial threats, the restoration looks precarious.
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