The famous moment earlier this year when PM Costa asked European Commissioner Ursula Von der Leyen if he could go to the bank. "Yes", she said.

Brussels fires bazooka at Portugal’s badly-run public businesses

Brussels is not impressed with the way Portugal runs public concerns and businesses. It is threatening to use the ‘bazooka’ (the billions in grant funding destined for pandemic recovery) to ensure things improve.

In other words, it will be ‘holding out’ on money promised unless the State ‘shapes up’.

This is the gist of a report in Diário de Notícias today which explains “badly run public companies that don’t comply with targets set by the PRR (plan for recovery and resilience) contract could incur penalties that could prejudice access to European funds and the capacity to absorb European support, much of it in the form of non-repayable grants”.

The threat comes from the “group of experts” from the European Commission that has been ‘following Portugal’s post-programme of adjustment’ (meaning the men in suits carrying briefcases who travel over periodically to see if the State is running the country the way they think it should be run since it exited the terms of the €79 billion bailout).

These experts are dissatisfied with the “lack of resilience and financial sustainability” of the SNS health service, says DN. They are also unhappy with the State’s business sector.

Says the paper: “For the evaluators from Brussels, the financial situation of many public companies was already delicate, or poor, before the pandemic. Now, after almost two years of pandemic, it is even worse”.

“And the cases where there is little information on management decisions, as well as lack of quality of such, have multiplied”.

Indeed, the experts are calling for a complete overhaul of the way the State manages its business sector – not least when it comes to transport services, decimated in terms of revenue during the various lockdowns and measures affecting people’s mobility.

Transport leads neatly into the issues with TAP: a State business that has been hemorrhaging money for decades.

As DN explains: “The Commission recalls that the country’s flagship carrier received emergency aid of €1.2 billion (equivalent to 0.6% of GDP) in 2020. The Commission’s autumn forecast for 2021 “takes into account additional budgetary impacts of €998 million, and €900 million in 2022 in TAP’s case linked to compensation for damages resulting from Covid on the restructuring package”.

In a short sentence, Brussels is looking at what amounts to €3 billion being spent on TAP in three years… and has already opened an investigation “to assess whether this is in line with European Union rules on State aid granted to firms in difficulty”.

Complaints from Ryanair would suggest that it isn’t. Ryanair’s outspoken president has repeatedly said that State aid being ploughed into TAP is like throwing taxpayers’ money down the lavatory” (click here).

Brussels’ moneymen are also looking at Azores airline SATA, gobbling up money to a much lesser degree, but gobbling it nonetheless – and remarking that “as well as this, up to August 2021, other public companies operating in the transport sector, namely Infraestruturas de Portugal (Estradas de Portugal and REFER), the Lisbon and Porto Metros and national railways have all received injections of capital or State loans to a value close to the equivalent of 0.6% of GDP”. Meaning – another TAP…

“Even worse, in Brussels’ opinion, the pandemic crisis aggravated risks that existed (pre-pandemic) regarding the financial sustainability of public businesses”.

Thus, the plan for “a new system of incentives and penalties”, designed to “improve the governance of public companies”.

The Commission’s message is that “money should not fall from the sky” even when it has been promised for so many months, for recovery from a crippling pandemic.

DN adds that the PRR has already established that the government will do “various things” to receive what amounts to almost €14 billion in grant funding, but some of these “things” refer to requirements that are years behind: the publication figures by the finance ministry on State company balances and performances, for instance. The last annual report on “practices of good government” dates back to 2017, says DN.

The fact that these new challenges come now, just as the PS government is hoping to be returned to power with a reinforced majority just make the weeks ahead even more complicated.

PM António Costa used the impending arrival of the bazooka from Brussels during the municipal elections in September almost as an electioneering foil (click here). Now, it may not be quite as easy.