Portugal’s
battling Costas
Ruling
Socialists accuse the governor of misconduct as they struggle to prop
up the economy and the banks.
By PAUL AMES
4/22/16, 5:38 AM CET
LISBON —
Portugal’s central bank chief Carlos Costa is under attack from the
leftist government of Prime Minister António Costa, in a battle
reflecting divergences over how to spur growth and prop up a shaky
financial sector.
Ostensibly the fight
is over Bank of Portugal Governor Carlos Costa’s role in a bank
collapse last December that left taxpayers with a €2.2 billion
bill. More importantly, perhaps, he is an awkward reminder of the
austerity policies of the previous center-right government, at a time
when António Costa’s six-month-old Socialist administration is
attempting to “turn the page.”
The clash of the
Costas comes as Portugal seeks to shore up its fragile banks, a key
plank in the minority government’s efforts to meet eurozone budget
goals, spur growth and placate two far-left parties whose support the
prime minister needs to survive.
Finance Minister
Mário Centeno has repeated accusations by a junior minister that the
central bank governor committed a “serious failing,” following
revelations that Carlos Costa had recommended — without informing
the government — that the European Central Bank should cut funding
for the moribund Portuguese bank Banif.
Centeno’s wording
was significant: Committing “serious misconduct” is one of the
few grounds for dismissing a eurozone central bank governor.
The center-right
opposition has hit back by accusing Centeno of lying to a
parliamentary committee investigating the Banif collapse and of
favoring Banco Santander, the Spanish bank that snapped up the
remnants of the Portuguese lender for €150 million.
Both men denied any
wrongdoing Tuesday when they were hauled before the committee for a
second round of grilling.
Carlos Costa said
ECB confidentiality rules prevented him from keeping the government
informed of his talks there.
“I put it down to
a misunderstanding,” he said of the government attacks on him.
“I don’t think
it was anybody’s intention to undermine the independence of the
Bank of Portugal at the risk of putting the country in trouble,”
Costa added with a wry smile.
The clear suggestion
was that a move to oust him won’t help the reputation of a country
whose finances are already prompting international unease.
Risk of slippage
Among a slew of
recent cautions, a European Commission report published Monday warns
of “a risk of a significant deviation” from deficit-cutting
commitments and says “structural reforms [have] lost momentum.”
It blasts government
plans to raise the minimum wage, hike public-sector salaries and
re-introduce a 35-hour limit to the working week.
António Costa’s
government dismissed the report as outdated and rejects the report’s
call for extra austerity measures — which Portuguese media say
could entail €700 million in additional cuts this year.
The Commission is
not alone in expressing concern.
“There has been a
fiscal relaxation in the last two years which clearly goes in the
wrong direction,” Poul Thomsen, head of the International Monetary
Fund’s European department, told a news conference Friday in
Washington. “Additional measures are needed.”
The Organization for
Economic Cooperation and Development this week warned Portugal needs
“a second wave of structural reforms.” A report from the ratings
agency Fitch cautioned Portugal and Italy are being left behind as
Spain and Ireland bounce back from the eurozone periphery crisis.
A key test will come
on April 29, when Canada’s DBRS ratings agency reviews its
assessment of Portugal’s debt-repayment ability.
It’s the only
leading agency keeping Portugal’s rating above junk level. A
downgrade could cut off ECB funding and force Lisbon to seek a a new
bailout.
So far, signs are
positive. “We remain fairly sanguine,” Fergus McCormick, DBRS
head of sovereign ratings, told POLITICO.
“We have two
concerns: one, the possibility of fiscal slippage — if it’s
significant that would not be good; second, whether or not you have a
functioning coalition [and are] on the same page as the European
Commission,” he said from New York.
Lisbon’s “fairly
constructive” dialogue with the Commission, “gives us comfort,”
added McCormick, who met with a senior Portuguese delegation in
Washington over the weekend.
Matador
One thing Portugal
cannot afford is another bank collapse. The financial sector is
struggling with bad debts and low profits. The government is mulling
the formation of a “bad bank” to absorb nonperforming loans
estimated to total €20 billion. It’s looking closely at the fund
Italy set up this month to shore up its struggling banks.
“The Italian case
is a bit of a good example for us,” Centeno said on his trip to
Washington. “We are in contact with the same advisers that worked
with the Italian government.”
Badly needed capital
is coming over the border from Spanish banks keen to invest in
Portugal.
‘There’s
a risk Portugal’s banking sector will be dominated by Spanish
banks’ — Luís Marques Mendes
After the government
tweaked the rules in its favor, Barcelona-based La Caixa looks poised
to win a long and bitter battle with Isabel dos Santos, the
billionaire daughter of Angola’s president, for control of
Portugal’s fifth-largest bank, BPI.
Santander is already
Portugal’s third-largest bank. Overall, Spanish banks are estimated
to control about a quarter of the sector, with €59 billion
invested.
However, some
Portuguese are growing prickly over Spain’s financial influence.
“There’s a risk
Portugal’s banking sector will be dominated by Spanish banks. This
is in no way good for the Portuguese economy,” Luís Marques
Mendes, former leader of the opposition Social Democratic Party, told
SIC television.
A cartoon in the
weekly Expresso newspaper showed a matador daubing Portugal’s
rooster symbol in the red-and-yellow colors of the Spanish flag.
Politicians on the left and right urge the government to resist an
espanholização of the banking sector.
The flurry of
financial nationalism is putting António Costa in a spot.
On the one hand
Spanish capital could help bolster the banks and give a boost to
government coffers. Spanish banks look mostly likely to buy
loss-making Novo Banco, whose sale would help the state recover some
of the €3.9 billion loan it sunk into a bailout of the lender in
2014.
But Costa’s
far-left allies would rather the government nationalize Novo Banco.
The prime minister’s
problems are not just economic. A spate of political mishaps this
month has left the government facing accusations of amateurism and
arrogance.
They included the
forced resignation of the culture minister, João Soares, after he
repeatedly threatened violence against a pair of critical
journalists; revelations that António Costa eased a lawyer friend
into a well-paid government consultant position; and a spat over gay
rights in the military that saw the army commander angrily step down.
None of which
appears to have dented the prime minister’s popularity: Costa’s
approval rating is up 5.5 points to 42.2 percent, according to a poll
in Saturday’s Expresso, making him the most popular party leader.
That may explain why he feels confident enough to take on his
namesake at the central bank.
Authors:
Paul Ames
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