Portugal's finance minister, Mário Centeno, believes his election as president of the EU’s Eurogroup reflects the country’s efforts to achieve economic recovery, and proves anti-austerity policies can be compatible with EU fiscal rules. Peter Wise reports.

Mario Centeno

Mario Centeno

Mário Centeno, a Harvard-trained economist, had no previous experience in government when he was appointed Portugal's finance minister in November 2015. Two years later, he was elected president of the Eurogroup of eurozone finance ministers in what he views as an acknowledgment of Portugal’s economic turnaround.

“It is only fair to view my election as a recognition of our people’s efforts and the achievements of the Portuguese economy in recent years,” he says. “Portugal today is an example of a successful economic adjustment in the euro area. We managed to build on the efforts made during the crisis years, steering the economy out of recession, reactivating the job market and delivering sustainable and inclusive growth.”

Mr Centeno, the chief architect of the Socialist government’s economic programme, believes Portugal has proven there is an alternative to austerity. “The success of our policies is an acknowledgement that there was a way to move away from austerity policies and comply with European fiscal rules,” he says. “Portugal has turned a corner in terms of growth, external imbalances and fiscal consolidation.”

Labour market recovery

A labour market specialist, Mr Centeno has presided over a strong recovery that began to accelerate in late 2016. “The economy is growing above the EU and euro area’s averages, expanding 2.7% in 2017. Exports gained 3 percentage points of market share in 2017. Unemployment is at pre-crisis levels at below 8%, and employment growth is strong, reaching 3.5% last year,” he says.

He does not envisage any further big labour reforms. “There have been important structural changes in the labour market over the past decade. These started well before the adjustment programme, were further developed during it and have not been reversed. It is time to allow the full effects of these reforms to emerge.”

Labour market segmentation between permanent and temporary contracts is still a challenge, he says. However, he adds: “Today there is a much smaller number of non-permanent jobs and in the past couple of years, more than 90% of the net employment gain was in permanent salaried positions.”

Anti-austerity and growth

For many analysts, Mr Centeno’s chief feat has been to show that overturning austerity by restoring public sector wages and pensions to pre-crisis levels is not incompatible with fiscal discipline.

Current public spending is being carefully managed to consolidate the declining trajectory of public debt 

“Fiscal deficits are at their lowest levels in the past four decades – 0.9% [of gross domestic product] in 2017 – with a primary surplus of 3% last year, the second highest in the EU. The current account has been in surplus for several years,” he says. It is important, he adds, to ensure that fiscal consolidation moves at a pace that is compatible with growth. “Current public spending is being carefully managed, partly by freezing intermediate consumption, to consolidate the declining trajectory of public debt.”

This does not mean the government has stopped investing. Mr Centeno says: “Public investment increased by about 25% in 2017 and there is currently a strong pipeline of EU co-funded investment projects focused on transport infrastructure, urban regeneration, healthcare and education services, research and development, and innovation.”

Mending Portugal’s banks

Mr Centeno defends his government’s intervention in several banks, saying Portugal “like numerous other countries had to use public money to stabilise its financial sector”.

These interventions included the resolution of Banco Internacional do Funchal and its sale to Banco Santander Totta, legislative changes that enabled Millennium bcp and Banco BPI to strengthen their shareholder base, the recapitalisation of state-owned Caixa Geral de Depósitos and the sale of Novo Banco (see feature on Portugal’s banks on page 64).

“These achievements removed an important source of uncertainty and were shown to be critical to the stabilisation of the banking system,” he says. “Currently, the sector is much better prepared to deal with external shocks, having solid capital levels and a diversified shareholder base.”

Mr Centeno nevertheless advocates additional European reforms, saying: “Although the euro area banking system is much better prepared to deal with shocks, there is still room for improvement by introducing deposit guarantees at the euro area level and a common backstop to the Single Resolution Fund.”

Mr Centeno, who has in the past criticised rating agencies for treating Portugal unfairly, is confident of further upgrades. “It is reasonable to expect Moody’s to join Fitch and Standard & Poor's in restoring Portugal to investment grade before March 2019,” he says. “Portugal has posted positive progress in all risk factors – gross domestic product growth has exceeded expectations, budget execution has outperformed for three years in a row, public debt stock is declining on a sustainable basis, private sector deleveraging has been progressing well and financial stability has been restored.”


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