As EU leaders prepare to meet in the Slovakian capital of Bratislava for their first ‘post-Brexit-vote’ summit, Portugal is suddenly back at the centre of what has been described as a “perfect storm”. The UK’s Financial Times suggests “meagre economic growth, falling investment, low competitiveness, persistent fiscal deficits and an under-capitalised banking sector that owns too much of the nation’s sky-high public debt” could be propelling the country towards a second bailout. It hasn’t helped that Finance Minister Mário Centeno ‘shot himself in the foot’ on US TV this week saying he was “doing everything” to avoid a second bailout.
The crux of the FT’s critique was that Portugal’s Socialist government “is more inclined to crowd-pleasing anti-austerity measures than deep reform”.
The question, warned Europe Editor Tony Barber, is “whether Portugal’s troubles will make a second financial rescue unavoidable” – and ‘therein lies the rub’. Portugal’s debt has already been described as “unsustainable”, therefore any new rescue programme would have to bear this in mind.
A ‘haircut scenario’ (debt relief) is a “question of utmost delicacy”, Barber explains.
Sixty per cent of Portugal’s debt is held by a combination of the eurozone’s central bank network and financial and non-financial investors in Portugal, while “investors outside Portugal own the remaining 40% and would, understandably, be apprehensive about any second bailout that foresaw an extensive write-off of Portuguese debt”.
Added to this is the fact that the IMF is wary of any new kind of troika-led programme for another weak eurozone state.
It has been “burnt by its experiences with Greece’s three bailouts”, and if Portugal were to need help “would first demand a hard-headed analysis of whether the nation had any chance of repaying its debt”.
Another problem with a bailout is the fact that without the IMF on board, “a German-led eurozone rescue” would very possibly go down like a lead balloon with German voters 12 months before the country holds parliamentary elections.
Thus, the picture is grim – possibly even more so for Europe than Portugal.
Barber talks about the ‘perfect storm’ of economic no-nos, but, equally, European leaders are facing choices akin to a rock and a hard place.
The very whiff of debt relief could spark sovereign debt market contagion which could rapidly spread to other parts of the eurozone, explains the FT.
Then came the Finance Minister’s ‘gaffe’ to CNN news channel, which opposition parties seized on accusing Centeno of “political pyromania”.
In the end, it was much more a case of the wrong choice of words when speaking a foreign language (Centeno was speaking English and “just answering a question”, left-wing allies have defended).
Beyond national borders few seemed concerned either way, and noticiasaominunto writes that Moody’s ratings agency has declared “there is really very little fear of a new situation of unsustainability” in Portugal.
“Club Med of southern countries” to tell Merkel to end austerity
Meantime, the UK’s leading Sunday paper, the Sunday Times, has a different take on what is ‘going down’ behind the scenes in an increasingly divided Europe.
It claims that “Europe’s Club Med” – Portugal, Italy, Spain, France, Greece, Malta and Cyprus – will be “confronting German chancellor Angela Merkel” in Bratislava on Friday, “with a divisive demand” for the “easing of austerity, tighter security and a solution of the migrant issue”.
It promises to create a conflict that “will complicate efforts to use the meeting to paper over the cracks in the union and forge a hard line on Brexit,” the paper adds.
The stand came following last week’s EU Mediterranean countries summit in Athens, at which Portugal’s prime minister António Costa was photographed patting Tsipras genially on the back.
The friendship between Costa and Tsipras has never been any kind of secret, and indeed next year’s “Club Med” summit is due to go ahead in Portugal.
By then Hungary will have had its referendum on immigration, Austria will have re-run the presidential elections that were ‘almost won by a staunch right-winger’, the French will have elected a new president and Germany will have gone to the polls.
In the words of the ST, “besieged on the left and the right, the European Commission and its leading governments are crafting a strategy they hope will appease voters and send a signal that leaving the union is not an answer”.
As if on cue on Wednesday, EC president Jean-Claude Juncker issued a statement in relation to fallout from the Brexit vote in which he said “the union is not at risk”.
It doesn’t take much to realise that very little is going according to Brussels’ masterplan.
Portugal should play “very active role in Brexit”, says former minister
In another ‘cameo’ playing out at home, former Socialist foreign affairs minister Luís Amado gave a speech to the PSD conference in Coimbra this week centring on “the challenges facing Europe”, and defending a “very active role” for Portugal in the process of Brexit.
Britain’s withdrawal from the EU corresponds with a “very difficult moment” in the “recomposition of continental Europe”, he said, and as the country’s “old ally”, it was up to Portugal to lend a hand.
The nation “should facilitate” the process by helping “absorb tensions”, he said – and this was a moment in which both leading parties, PS and PSD, should put aside party-political agendas in the interests of “repositioning the country” in the eyes of Europe.
National papers picked different angles to present the nuts and bolts of the speech, but as Diário de Notícias stressed, “Amado said that if Portugal could manage to offer more certainty, more stability and more ‘predictability’, it would certainly be able to guarantee better conditions and more investment”.
By NATASHA DONN email@example.com
Photo: Portugal’s Prime Minister António Costa and German Chancellor Angela Merkel during a press conference at the chancellery in Berlin in February
Photo by: Bernd von Jutrczenka/Epa