Ex-finance minister at ICPT – What will he say?
Portugal’s former Finance minister is likely to tell business leaders what they know already when he addresses the International Club of Portugal on Thursday (17 February) – that Portugal can’t get any further into debt.
Economist Fernando Teixeira dos Santos should know this well. He was the Finance minister under the Socialist Party (PS) government of José Sócrates whose expansionist public spending policies, allied to the Great Recession and Sovereign Debt Crisis a decade ago, led to Portugal’s application for a €78Bn bailout from a troika of International lenders in 2011 as the then government collapsed.
His problem now is that while stating the obvious, as he did less than one month ago in the press, the current PS government’s finances under Finance minister João Leão, and the steady hand of the supervisory Governor of the Bank of Portugal Mário Centeno have, both in 2019 and 2021, been making some attempts tackle the country’s total public debt (€269Bn) and budget deficit (with the exception of 2020 and the first half of 2021 because of the Covid-19 pandemic).
In an interview with the Lusa news agency in January in which he plugged his book ‘The Times have Changed – The Challenges Haven’t’, Teixeira dos Santos pointed out the old story that “what’s wrong is that we spend more money than we have”.
There is a discussion in politics and in the media which leads people to wrong thinking and does not foster a sense of economic and financial responsibility in the country, meaning that austerity-bashing translates into we’re doing fine.”
“This completely turns what should be our economic and financial priorities upside down”. Fernando Teixeira dos Santos who was the minister responsible for calling in the ‘Troika’ was finance minister of Portugal under the José Sócrates government between 2005-2011 and was also president of the Portuguese stock market regulator CMVM between 2000-2005. Between 2016 and 2020 he was board president at the bank Eurobic.
His opinions were made in relation to the public debate currently underway regarding the European Commission’s possible revision of the EU’s budget rules which govern how much debt each EU Member-State may have under the Maastricht Treaty and Stability Pact.
The European Commission opened a debate in October on how to reform the European Union’s fiscal rules to deal with a pandemic-induced surge in public debt and with the huge investment needed to fight climate change.
“We are re-launching this review of our economic governance against a backdrop of enormous investment needs, as the climate emergency becomes more acute with every passing year,” European Economic Commissioner Paolo Gentiloni had said at the time.
The debate is to produce a fourth reform of the rules since they were established in 1997 to limit government borrowing to safeguard the value of the EU’s currency — the euro. Revised in 2005, 2011 and 2013, the so-called Stability and Growth Pact is now so complex that few people fully understand it says Reuters.
Annual debt reductions required by the current rules are simply not realistic for countries with debts of 160% of GDP like Italy, nearly 130% like Portugal, or more than 200% like Greece.
Fernando Teixeira dos Santos also is likely to point out that under the current trajectory it will take Portugal
290 years to equal the average productivity level of the EU. “We shouldn’t have any illusions about this”.