Author: Paul Ames
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 PresidentFrançois 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.