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Portugal as a successful destination for foreign investors - facts or mere marketing?

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Certainly, the fiasco surrounding the Banco Espírito Santo (BES) case is, many argue, a prime example of why Portugal’s banking system is still need badly flawed and in need of reform. The case, whose repercussions are still being felt today, represented a remarkable fall from grace of one of Europe’s most prominent business clans.

BES was the second largest private financial institution in Portugal in terms of net assets, as well as one of the oldest and most reputed Portuguese banks. Run for nearly 150 years by one of the country's most wealthy and powerful families, the Espírito Santo family, its activities included tourism, health and agriculture.

But the bank failed and the house of cards that was the Espírito Santo empire collapsed.

In 2014, the bank had to be rescued after weeks of increasingly bad news about its financial state. BES was subsequently split into a "good bank", renamed Novo Banco, and a "bad bank".

Novo Banco was recapitalised to the tune of €4.9 billion  by a special bank Resolution Fund. The Portuguese state lent the fund some €4.4 billion.

The European Commission approved, under EU state aid rules, the Portuguese measures which allowed the new private owner to launch a restructuring plan aimed at ensuring the long-term viability of the bank.

However, all this did relatively little to restore confidence and it was later announced that the state-rescued Novo Banco would cut 1,000 jobs to help to reduce operating costs by €150 million as part of its EU restructuring plan.The job cuts equated to 14 percent of the bank's workforce at the time.

But that was not the end of it: it was reported just this week that losses at Novo Banco,carved out of the collapsed BE, widened 25 percent in 2020 to €1.3 billion. It is also believed that legal action against Novo Banco is currently pending by a group of over 20 financial institutions.

The loss-making Novo Banco is 75%-owned by U.S. private equity firm Lone Star and the remaining 25% is owned by the Resolution Fund, which is backed by all Portuguese banks which pay annual contributions to finance it.

Novo Banco has been offloading bad loans, real estate and non-core assets under restructuring commitments agreed with the EU, and the resolution fund has already injected €3 billion into the bank to cover losses. But Opposition political parties in Portugal are against injecting yet more cash into Novo Banco and, last November, blocked a Portuguese government proposal for the resolution fund to inject an extra €476 million.

Current problems surrounding Novo Banco and BES, its predecessor, have re-ignited concerns about systemic flaws in the entire Portuguese banking system.

Banco Espírito Santo’s financial problems can be traced to dubious loans the bank made to prop up other businesses that were controlled by the bank’s parent company but it could be argued that the government rescue of one of Portugal’s largest lenders was an object lesson in regulatory failure.

Primarily, it has been a failure of the Portuguese officials who had the primary responsibility for supervising the bank.

Three financial experts, Zsolt Darvas,André Sapir and Guntram Wolff, in a policy paper for the think tank, Bruegel, argue that Portugal, should not have made a clean exit from EU financial assistance when its programme ended in May 2014.

Compared to Ireland, which also received similar aid, Portugal faced higher interest rates, had poorer growth prospects and had probably less ability to generate a consistently high primary surplus, say Darvas, Sapir and Wolff.

“A precautionary arrangement would have been advisable for a number of reasons but most importantly as a measure to stabilize market expectations and prevent market over-reactions,” they said.

The key questions now, they say, are two fold:

Is the BES case an isolated case in which problems had grown too big to be hidden any more? and

How and how much will the BES case affect economic growth of Portugal?

They say, “The Portuguese case is not only very interesting on its own right but even more so in its broader implications for Europe’s emerging banking union.”

Whether Portugal has understood and also learned the lessons from the BES fiasco presents an important test now of the Portuguese financial system.

The authorities have to make sure it does not become easy for banks to look good and hide their problems as Banco Espírito Santo appeared to have done. Europe’s economy will not recover until its banking system is truly healthy.

Portugal

UN Security Council backs Guterres for second term

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The United Nations Security Council backed Secretary-General Antonio Guterres (pictured) on Tuesday (8 June) for a second term, recommending that the 193-member General Assembly appoint him for another five years starting 1 January 2022, writes Michelle Nichols.

Estonia's UN ambassador, Sven Jürgenson, council president for June, said the General Assembly was likely to meet to make the appointment on 18 June.

"I am very grateful to the members of the council for the trust they have placed in me," Guterres said in a statement. "I would be deeply humbled if the General Assembly were to entrust me with the responsibilities of a second mandate."

Guterres succeeded Ban Ki-moon in January 2017, just weeks before Donald Trump became U.S. president. Much of Guterres' first term was focused on placating Trump, who questioned the value of the United Nations and multilateralism.

The United States is the largest U.N. financial contributor, responsible for 22 percent of the regular budget and around a quarter of the peacekeeping budget. President Joe Biden, who took office in January, has started restoring funding cuts made by Trump to some U.N. agencies and re-engaged with the world body.

A handful of people sought to challenge Guterres, but he was formally unopposed. A person was only considered a candidate once nominated by a member state. Portugal put forward Guterres for a second term, but no one else had the backing of a member state.

Guterres, 72, was prime minister of Portugal from 1995 to 2002 and head of the U.N. refugee agency from 2005 to 2015. As secretary-general, he has been a cheerleader for climate action, COVID-19 vaccines for all and digital cooperation.

When he took the reins as U.N. chief, the world body was struggling to end wars and deal with humanitarian crises in Syria and Yemen. Those conflicts are still unresolved, and Guterres is also now faced with emergencies in Myanmar and Ethiopia's Tigray.

New York-based Human Rights Watch urged Guterres to take a more public stand during his second term, noting that his "recent willingness" to denounce abuses in Myanmar and Belarus should be expanded to include "powerful and protected" governments deserving condemnation.

"Guterres's first term was defined by public silence regarding human rights abuses by China, Russia, and the United States and their allies," said Kenneth Roth, executive director of Human Rights Watch.

UN spokesman Stephane Dujarric said Guterres has a "strong stance on defending human rights, speaking up against abuses".

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'It's unfair': British tourists fume as Portugal removed from safe travel list

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Tired of mixed messages, British sunseekers in Portugal reacted with fury and disbelief to their government's decision to reimpose a quarantine regime for travellers coming from the popular southern European destination, write Catarina Demony and Miguel Pereira.

Desperate to shake off pandemic blues, John Joyce, from Newcastle, and his family decided to book a holiday in sunny Portugal as soon as Britain added it to the so-called green list of foreign destinations around three weeks ago.

"Everybody needed a little break... a change from being stuck at home," the 44-year-old said as he enjoyed a beer at a restaurant in the heart of Lisbon.

Portugal was the only big beach destination placed on the list, which allowed Britons to travel there without needing to quarantine when returning home. Like Joyce, thousands packed their bags.

But on Thursday Britain shifted Portugal to its amber list due to rising COVID-19 case numbers and the risk of a mutation of the virus variant first discovered in India. Read more ]

"It's a bit unfair," Joyce said. "There are families bringing out kids and people who booked their holidays already...and the stress involved for people, including myself," a visibly annoyed Joyce said.

Charlotte Cheddle, a 22-year-old from England, echoed the same feelings, urging the British government to either "ban international travel completely or communicate properly with people".

People sunbathe on the Luz beach, amid the coronavirus disease (COVID-19) pandemic, in Lagos, Portugal, June 3, 2021. REUTERS/Pedro Nunes
A Ryanair flight from Manchester arrives at Faro Airport on the first day that Britons are allowed to enter Portugal without needing to quarantine, as coronavirus disease (COVID-19) restrictions continue to ease, in Faro, Portugal, May 17, 2021. REUTERS/Pedro Nunes/File Photo

"It's silly," said Cheddle, who will now have to quarantine for 10 days when she flies back. "We made an effort to get tested privately...We paid for everything and we have done everything to make it safe."

Portugal has lifted most of its lockdown restrictions. The government has been heavily criticised for allowing thousands of mainly maskless English football to party in Porto during the Champions League final last weekend.

Some locals worried it could fuel a spike in cases.

The country of just over 10 million people reported 769 new COVID-19 cases on Thursday, the highest daily increase since early April. Total infections now stand at 851,031.

The British government's decision is a huge blow for Portugal's tourism sector, which represents a significant chunk of GDP and has Britain as one of its biggest foreign markets.

"It's not great for businesses but slowly we will get there - or at least I really hope so because our economy is down," said restaurant manager Ana Paula Gomes in Lisbon.

The head of the hotels' association in the touristy Algarve region, Eliderico Viegas, said Britain's move would hit the sector like a "bucket of cold water".

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Portugal's 'Golden Passports'

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Portugal is seen as being one of the market leaders in the highly controversial so-called 'Golden Passport' business, writes Colin Stevens.

This is a lucrative scheme started by several countries as a relatively easy way to attract foreign money after the 2008 financial crisis but criticized by many for attracting criminals and money laundering to the EU.

It is believed that Portugal has so far issued golden visas to more than 25,000 people, earning more than €5.5 billion, with Henley Partners as the agency mandated by the Portuguese government to handle passport applications.

Now, however, fresh pressure is growing on the EU and its member states to put an end to golden visa programmes that give applicants European residency and/ or citizenship.

The European Parliament says that EU citizenship “cannot be marketed as a commodity” while German MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group, told this website: “Civil rights come to depend on one’s wallet if they can be bought.”

Since its recovery from the financial crisis and the EU bail-out, Portugal has been promoting an image of “EU´s good student” and “poster boy” of economic reform but the reality of Portuguese politics is often a good deal more convoluted than its shiny “poster boy” image suggests.

Some argue that the golden visa programme is a good case in point.

Portugal’s Golden Residence Permit Programme is a five year investment-based residence process for non-EU nationals which allows visa-free travel in the Schengen Zone of 26 European countries. It requires an average of seven days per year stay in Portugal and, after five years as a resident, an applicant is eligible for citizenship if desired.

Portugal does not currently provide golden visa applicants with citizenship but, rather, gives them residency and the ability to travel unimpeded throughout Europe. But, even so, many have questioned the calibre of people afforded the

Portuguese golden visas. These are people – the vast majority of them Chinese - who have, in turn, invested billions of euros into the country.

Even during the health pandemic, it is estimated that such people invested some €43.5 million in Portugal, the vast bulk of it in property.  It is believed that Portugal issued a total of 993 golden visas between January and September last year alone, with most going to investors from China,  followed by Brazil and the U.S.

Critics, however, say the scheme has forced up property prices and totally changed the face of local communities in Portugal.

One example is a new 55-apartment luxury residential project in downtown Lisbon, where around 40% of the acquisitions were made by golden visa buyers.”

To secure residency, an investor has to invest €500,000 in the Portuguese property market, or €1m in the wider economy, or create a business that employs 10 or more people. Portugal introduced the initiative when mired in a financial crisis and desperate to boost inward investment.

The scheme has brought more than €5 billion of foreign investment into the country, according to latest estimates. And this has led to a property boom in both Lisbon and Porto.

But critics of the scheme, such as Giegold, say applicants are not sufficiently vetted, leading to some foreign criminals getting visas.

It is also argued that not enough jobs have been created as a result of the investment, pointing out that out of all 6,416 wealthy foreigners who were granted a golden visa, only 11 individuals (0.2%) went for the option where they create a business that employs more than 10 people.

Ana Santos, of the University of Coimbra, cautions that the golden visa scheme has led to sky-high prices in the Portuguese residential property market.

The European Commission has opened infringement proceedings against Cyprus and Malta for their golden citizenship programmes.

Giegold is among those who want the commission to take similar action against Portugal. He said, “EU citizenship cannot be marketed as a commodity.Visas are not a commodity. Civil rights come to depend on one’s wallet if they can be bought. The sale of visas violates the values and spirit of European cooperation. Individual countries make money selling visas, but the rights apply to the entire Schengen area.”

He added: “Portugal alone has so far issued golden visas to more than 25,000 people, earning more than €5.5 billion.It is a mistake that Ursula von der Leyen does not want to initiate infringement proceedings against member states who sell visas. Von der Leyen does not do justice to her role as guardian of the EU treaties. Doing nothing is an open invitation to criminals.

“Portugal makes profits from rights which are valid throughout Europe. It is a sign of hope that France and Germany do not participate in this questionable source of income. But all member states are exposed to the security risks that golden visas entail throughout the EU. Golden visas open the door for criminals. They can easily launder their dirty money in the EU and avoid taxes. The EU Commission should immediately initiate infringement proceedings against EU member states with visa sales programmes.”

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