Portuguese banks have been on the news a lot lately. From the parliamentary inquiry hearings on the sale of Banif to Spain’s Santander, to the complications in the BPI deal between the also Spanish Caixabank and the company owned by Isabel dos Santos, daughter of the Angolan dictator José Eduardo dos Santos, it’s impossible to read a newspaper or watch TV without stumbling on some piece about the Portuguese banking system. A few years ago, as the American subprime crisis began to spread across the Atlantic, I remember hearing many commentators praising Portuguese banques for their lack of exposure to those toxic assets in particular. But as it turned out, the Portuguese banking system was exposed to the bursting of two other correlated bubbles: the portuguese sovereign debt and the politically-incentivised internal credit bubbles that blew up as the subprime crisis turned into a global financial one.
Banks had to be either bailed out or receive governmnetal (via “troika” loans) financial assistance, and Banco Espírito Santo’s (BES) less than clear (to put it mildly) practices moved under the eyes of the law, and the fragility of the system as a whole has become obvious to even the most casual of observers. A few months ago, after the in-effect-bankrupt Banif was bought by Santander, many in the country expressed their fears of a Spanish takeover of the system. Those concerns, although understandable from their point of view, are themselves a concerning sympton of the disease that ails the Portuguese economic and political systems: as shrewd commentators like Luciano Amaral and Luis Aguiar Conraria noted, the country’s economic and political establishments are less than enthusiastic about foreign investors from countries like Spain stepping into Portugal’s banks because that might break up the cronyism in which they have operated for decades. As Amaral wrote, even though Portuguese banks – all of them – are badly in need of capital and new investors due to their dire financial situation, the establishment seems reluctant to accept the “Spanish invasion”, in a way it doesn’t seem to be about the Angolan or Chinese ones either in the banking system or other áreas of economic activity – maybe because this countries and their business establishments seem more accepting of our crony ways (it is true that the current government kind of forced the Caixabank takeover of BPI, but only after the ECB demanded – “raised concerns”, in oficial parlance – the bank to reduce its exposure to Angola, and after the deal it brokered between Caixabank and Isabel dos Santos fell apart, no one really knows why or how, exactly).
The case of Caixa Geral de Depósitos (CGD), the government-owned bank and the country’s largest, is illustrative of the establishment’s attitude towards the Portuguese banking system.Much like its competitors, CGD got a hefty loan to climb out of its capital predicament when the “troika” arrived in 2011 – which it hasn’t yet repaid – and is in desperate need of another capital injection, which the government doesn’t have the means to perform. And yet, whenever anyone in the establishment speaks about CGD, their concern lies in stressing the “importance”of CGD keeping its “public role”.
The last one to do so was the newly-elected President, Marcelo Rebelo de Sousa. Marcelo – as he is commonly referred to – was at the bank’s anniversary ceremony, and stated that “CGD as a public financial institution, under government control, is a fundamental piece of the portuguese financial system puzzle”. In a sense, he was absolutely right. Apart from being an excelent instrument with which government politicians can offer comfortable and well-paid employment to at least a few of their political friends, CGD is also a powerful tool with which governments of all parties can interfere in the country’s economic life, at the service of their whims or obscure interests. That was what happened a few years ago, when the government led by the Socialist party’s José Sócrates used CGD to loan a lot of Money to businessman Joe Berardo and a few others so they could tae control of BCP and place someone more in tune with the government at the helm of that particular bank. It was also what happened whenever governments used CGD’s role as a shareholder of several private (or privatised) enterprises in order to circumvent the european restrictions on governamental intervention in such companies, and thus impose their political will in deals in which the free market would have been inclined to pursue another direction. The case of Sonae’s attempt to buy Portugal Telecom (PT), blocked by CGD also under the government of José Sócrates, is just another one, easier in hindsight to remember since PT’s criminally suspect dealings with – among others – BES became public knowledge.
Furthermore, as Miguel Botelho Moniz, Carlos Guimarães Pinto and Ricardo Gonçalves Francisco wrote in their book, CGD is also a fundamental instrumental for their private-owned competitors to ensure that their competition will always be limited and that at least a quarter of the market share will be “complacent” with their own interests: if by some miracle CGD ended up being privatised, European competition rules would compel the government to sell it to someone “without a strong presence in Portugal”, which in turn and by virtue of their position would practically be forced to “develop a more aggressive commercial policy” that would create “further difficulties to the rest of the banks” and end the “existent oligopoly”. Altough a theoretical competitor of those private banques, CGD is, due to the crony nature of Portuguese business, an integral part of the network of interests’ protection that characterises the country’s banking system.
And that is why the President, although right in claiming that a government-owned Caixa is “fundamental” to Portugal’s banking system, is not right in considering that to be a good thing. That financial system as a whole and the role CGD plays in it are a definitive exemple of the nefarious effects of the simbiotic relationship between the State and economic “interests”. Claiming to act on the behalf of “public interest” in detriment of “private egotisms”, the government, by way of the bank it owns, ends up substituting the market of free initiative and competition between the individuals and groups they form with the “market” of political influence, in which what triumphs are the “egotisms” of the private parts who happen to have privileged access to the corridors of political power, whether because they are a member of the political party in power or because they own or belong to a business interest that has something to offer to the government, under the “I’ll scratch your back, you’ll scratch my back” principle of political-business reciprocity.
That’s why, with a financial system on the verge of collapse, the Portuguese political and economic establishment is worried, not about the consequences of the way in which it has been operating, but about ensuring that no disruption to that way of operating has any chance to do so. The establishment is banking on keeping the financial system with all its pernicious characteristics intact, because it’s own power depends on them remaining intact. The country as whole, on the other hand, would clearly benefit from a shake up of things. Unfortunately, if one does indeed end up coming, I fear it will only happen due to a catastrophic collapse of the current system and all that would entail, and not through awilling reform of the old ways.
Bruno Alves lives in Caxias, Portugal, but sometimes wishes he didn’t. He writes about politics, film and TV for O Insurgente, is an op-ed contributor to the Lisbon daily Diário Económico and a weekly commentator for its cable TV channel ETV, and has written for the American online film magazine Bright Wall/Dark Room, for These Footbal Times and for the British website CapX. Bruno welcomes both writing job offers and insults at firstname.lastname@example.org, and you can also find him on Twitter @ba_lifeofbruno.