The Dark Side of Portugal’s Economic Success Story

BRINGING DOWN THE DEBT
“Just five years ago, one building in three in Lisbon was derelict, dilapidated, or vacant, serving no social or economic purpose,” said Mendes of Morar em Lisboa. After the lucrative contract for Lisbon’s redevelopment went to the private sector, major municipal projects took off under Salgado. In the north, the planned Torre Portugália, a nearly 200-foot tower with luxury apartments, has been a focus of anger. Across the river Tagus, in the working-class part of the city, the Lisbon South Bay project promises to be the biggest urban redevelopment scheme since Lisbon’s Expo 98. A conference center, a marina, and upmarket hotels are planned. Its promoters say the project will “strengthen Lisbon’s status as a tourist and investment destination.” The city has become so enticing to international investors that this spring mayor Medina was invited to join the Bilderberg Meeting, the annual gathering of the Western political and economic elite.

These policies of privatizing what should be public finance windfalls, at the expense of people’s right to housing and to access to their own city, are intended to offset the Costa government’s feeble investment record. After the Socialists came to power, the purse strings have been pulled the tightest since Portugal’s democratization in 1974. In 2018 the country had the eurozone’s lowest level of public investment.

The Socialist government is obsessed with adhering to the budgetary orthodoxy imposed under EU treaties. So the main function of economic recovery has not been to improve the standard of living, but to bring down the deficit and the debt, estimated at 120 percent of GDP. “Many in the PS want to maintain good relations with the banking sector and the EU institutions, so that Portugal looks like Europe’s star pupil,” said MEP José Gusmão, leader of the Left Bloc (BE). “Its long-term objective is repaying the debt to get below the ceiling set by Brussels, 60 percent of GDP. But sticking to the current pace of debt reduction—which is unrealistic—would mean abandoning public investment for two decades.” Cordeiro admits that “our main disagreement with our partners on the left is still the pace of debt reduction. They don’t agree with our budgetary objectives. We accept them entirely.”

Finance minister Mário Centeno, a Harvard-educated neoliberal economist and current president of the Eurogroup, is responsible for the strict implementation of this policy. Rather than invest in the public sector, Centeno has recently bailed out Novo Banco for €1.6 billion; this private bank is the successor institution to Banco Espírito Santo, which failed in the crisis because of its speculation. Novo Banco had a previous €4.4 billion cash injection in 2014. Centeno’s recent decision made the radical left and communists angry, and they accuse him of preferring to clean up after private banks rather than invest in the country.