Everything seems to be going well for Portugal just now, and I wonder: What is the basis of the government’s success? Did it start when Portugal became European football champions in 2016, or when it won the Eurovision Song Contest last year? Can that really help the local banks?

Perhaps the recovery is based on a technological leap forward following two years of hosting the Web Summit. Or is everyone so happy with the country’s new President and his astronomically high public approval ratings that they go to work with smiles on their faces? Or has the Socialist party done such a good job in governing the country with the support of the Communist and hard-left parties that everyone feels taken care of? Has that made the banks solvent?

Perhaps the economic recovery provides a more solid foundation. After all, the unemployment rate has fallen by more than 50% since its peak in the recession, the interest rates on Portuguese government debt are down by an even higher percentage and, for the first time in decades, the country’s balance of payments before interest charges is in credit, aided by a booming tourist sector, and Lisbon and Porto becoming trendsetting cities. Perhaps the sun really began to shine when the Portuguese finance minister was elected President of the Eurogroup of finance ministers and was dubbed the “CR7 of Finance”.

The people left homeless by the country-wide forest last year, or the farmers whose land has dried up from lack of water, or those forced to emigrate by lack of work opportunities over the last decade probably feel that nothing has gone right for them. They may scorn the new government’s attempts to win popular support by restoring the four statutory holidays abolished as an austerity measures during the economic crisis. Is it serious about continuing with the structural reforms which the country still needs so badly? Why did the government not use the opportunity of restoring the holidays to attach those that fall in the middle of the week to the following weekend, so as to avoid all the working days lost as people make a ponte (bridge) between the holiday and the weekend?

In one eld, however, there has been a complete transformation. The names of most of the banks may remain the same, but the global financial meltdown has led to big changes in the ownership, scale and capital strength of all the Portuguese banks.

According to OECD figures, the market value of Portuguese banks has fallen this decade by more than 80%. One of the country’s largest private banks, Banco Espírito Santo, collapsed and it, together with the state-owned Caixa Geral de Depósitos and Millennium, the second largest bank, needed to be totally recapitalised. The three banks accounted for an estimated €25 billion to €30 billion of bad debts in the system, about 15% of total credit portfolios.

The end result has been that Portuguese banking is now dominated by foreign and state-owned banks.

Santander and CaixaBank have operated in Portugal for decades but have now expanded considerably. Santander has taken over Banco Popular, including its branch network in Portugal, and it bought the healthy assets of Banif, while CaixaBank has taken full control of BPI, and Bankinter has bought Barclays’ Portuguese operations.

The leading shareholders of Millennium are the Chinese company Fosun and Sonangol, the Angolan state oil company, and after a failed first attempt to find a buyer, the Portuguese government has sold 75% of Novo Banco (the good bank part of Banco Espírito Santo) to Lone Star, a US private equity fund.

Some problems in the smaller banks, like Montepio, remain to be sorted out, but the end result should be a stronger banking system which is better able to support Portugal’s under-capitalised and over-taxed commercial companies. The government can then encourage businesses to make the long-term investment needed to compete with the rest of the world. If the government has got that right, then the beneficial effect will continue well after the current coalition disappears.