Bank scandal hits the “left-wing” government of Portugal

With just a few weeks in office, the Socialist Party (PS) government of Portugal has orchestrated yet another scandal in its history, with the main protagonist being the bankrupt bank “Banco Internacional do Funchal SA” (Banif).

In late December, the government bailed out Banif using public funds while selling off the active part (“good” assets) of the bank to the private ownership of Santander. This decision was made on the eve of a deal with the European Union which has already been put in practice from the beginning of the new year. The new deal would hold senior shareholders (individuals and institutions), bondholders and clients with big deposits responsible for the bailing out of the bank if on the verge of bankruptcy. These recent developments question whether the government is really as “left-wing” as it tries to present itself and have led to the first serious crisis of the PS agreement with the Bloco (BE) and the Communist Party (PCP).

Unfinished business

The previous right-wing government, led by Pedro Passos Coelho and the coalition of PSD (Social Democratic Party) with CDS (People’s Party), had been synonymous with austerity. Just a year and half ago Passos Coelho’s government had given 4.4 billion euros of state money to bail out Banco Espírito Santo (BES) which was split—similarly to Banif—into two parts: the good assets were transferred to a new bank named “Novo Banco” and the so-called toxic assets stayed in BES. With the bailout, Novo Banco was handed over to the state, which has been trying to this day to sell it, but without success. No one is to say when this bank will be sold, and if it is sold it is most likely to be sold for less than half the bailout money. One of the main bidders for Novo Banco is Santander.

The BES case became worldwide news and created a state of panic amongst the Portuguese people. The head of the bank, Ricardo Espírito Santo Salgado, was put under house arrest after being accused of a series of crimes including tax fraud, money laundering, etc. The popularity of Bloco de Esquerda (BE) rose after this scandal. PCP proposed the creation of a parliamentary Commission of Inquiry to deal with the case of BES, led by MP Miguel Tiago. BE’s MP, Mariana Mortágua, was one of leading MPs in the investigation of the case of BES, during which she had the chance to give fiery speeches about the corruption of the banks and big agglomerates which were being protected by the PSD-CDS government. It was a major blow to the popularity of the right-wing government which they were not able to escape, even after scapegoating Salgado.

At the same time, Banif, a smaller bank which had already been gradually and steadily collapsing since 2008, had big investments in BES. Banif had been propped-up for many decades before the crisis because it was the main bank dealing with the financial needs of the construction companies of Madeira and the Azores islands. Given the halt in construction since 2008, Banif has been in a very bad state for 8 years now. In 2013 the government intervened, injecting 1.1bn euros, and bought off 60% of the shares of Banif to keep it going. The straw that broke the camel’s back was the collapse of BES, which lead to the inevitable collapse of Banif.

A perfectly orchestrated disaster

It is critical to narrate what happened a few days before the decision about Banif was made. On 13th December, Televisão Independente (TVI), a private channel owned by the Spanish media conglomerate PRISA, announced the upcoming bankruptcy of Banif, causing panic amongst the depositors, and the bank’s stocks fell by 40% within a few hours. One day after the announcement, the channel apologised, saying that they had never intended for people to draw the “wrong conclusions”. However, the damage had already been done and there was no way back. Even after the apology, the value of the stocks had fallen by 57%.

Things start making more sense when we have a look at the group of shareholders in PRISA. In March 2015 Santander Bank became one of the main shareholders of PRISA, holding 4.65% of the channel’s shares. It is therefore obvious that Santander orchestrated the panic around Banif, using TVI. This way, the stocks of Banif had to fall, and the Spanish bank was able to manipulate the situation to its advantage before the measures imposed by the EU become realised.

The response of the government

The PS government fell right into the trap. It would be naive to think they fell into it unconsciously. By pumping in 3 billion euros worth of taxpayers’ money they bailed out the bank, sold off its good part "for free" to Santander for the amount of 150 million euros (worth 1,400 million in 2013), and took in 2.26bn euros worth of ‘toxic’ debts.

António Costa, the current Prime Minister, blamed the European institutions for this deal. He said it came at a high cost, but was the only thing left to do to protect the deposits of households and companies. The blame on Europe was made after a letter became public, written by the commissioner for competition in Europe, Margrethe Vestager. The letter explained that Banif’s increasing problems were not dealt with by the previous government, so as to present an image of stability. The Portuguese-style harsh austerity had been presented as a success story - any sign of instability would make people question austerity as a whole.

However, Costa’s crocodile tears mean nothing to the taxpayers forced to pay the bill for yet another corrupt bank, all the assets of which are then transferred to the hands of ultra-rich capitalists. It seems that Costa’s party was as terrified to have to deal with a bankrupt bank after the EU measures are applied as the Santander owners were. For PS, it would be a disaster to ask the poor capitalists to pay for the bankruptcy of their bank, caused by their adventurous past. The crisis of capitalism manifested onto the banking system is once again paid for by the oppressed workers instead of by the initiators of the crisis.

The PS's Finance Minister went to parliament to explain that their preferred solution would have been essentially the same as defended by both parties to its left, namely to keep Banif under (bourgeois) public control by integrating it into the state-owned bank CGD. Their excuse not to do so was that EU regulations did not allow it, due to the fact that the state had put taxpayers’ money into the CGD in 2012. Of course, this excuse is rather weak: no attempt was even made to make a stand against Brussels on the issue, and this theatre in parliament was performed just in order to save face.

Let us recall that the rhetoric of this PS government is that they are turning the page on austerity—the results of the negotiations with the Left included the reversal of a lot of the cuts in salaries and pensions and a halt to privatisations. However, the PS remains committed to the interests of the bourgeoisie, and they dress this up as an (almost uncritical) commitment to Europe, with the quiet obedience to the EU diktats that this entails. Regardless of the fact that some in the PS (especially in the rank and file and their supporters) might be honestly in favour of reversing austerity, this is obviously incompatible with their acceptance of the limits imposed by the EU and the class interests that the EU (and the leadership of the PS) ultimately will defend.

The PS, knowing that they wouldn’t get the support of their left-wing “supporters” in parliament - BE and the Communist Party (PCP) - relied on the support of their (supposed) opponents, the right-wing PSD. After theatrically blaming the PS for the sale of Banif at such a low cost, the PSD abstained from the vote. It was the least they could do - a positive vote would make it too obvious to people what is happening.

The PS have inherited many problems from the previous government, and they are asked to govern under one of the deepest stages of the crisis since 2008. The only path is austerity, and they know it. If they cannot get approval from PCP and BE, they can always rely on PSD being eager to impose austerity with them. This is not to say that PSD or PS enjoy torturing workers and destroying the welfare state. It’s only their conscious decision to save themselves and their class from paying for this crisis. Nevertheless, someone has to pay, and so far it has only been the working class.

The response of the left wing

Soon after the announcement of the government’s plans on Banif, Bloco de Esquerda [Left Bloc] had come out with their critique. Marisa Matias, candidate of BE for the presidential elections, expressed her disagreement with the bailout in a media interview she gave on 15th December, arguing that “we must end the injection of public money into financial institutions.” She went on to suggest that there should be “strict criteria” not allowing for such abuse of taxpayers money. On 22nd December, BE proposed two “guarantees that will restore confidence in the country’s economy.” Namely, these include a law which promises to reorganise the system of supervision of and intervention into the financial system, removing powers from the Bank of Portugal (whose governor has been helping banks, especially BES, to hide these situations). The second guarantee argues that the government should not allow Novo Banco to pass into private hands, but instead come under public control.

The leadership of BE shows on this occasion its obsession with the legislative handling of problems. This comes as a direct result of their lack of understanding of the origins of the crisis and the inner workings of capitalism. For them, the crisis is a matter of mismanagement of the financial system, backed by excess greed on the side of capitalists. Austerity is an “ideological” choice. Since some politicians “chose” to act irresponsibly and selfishly, they can be forced to “choose” not to act in the same way again.

This is another example of illusions underlying the reformist left. Although all these proposals are well intended, they will do next to nothing under the current crisis. Not long ago, a similar solution was proposed in the Greek parliament concerning the debt. The “Truth Committee on Public Debt” was set up by Zoe Konstantopoulou last April as a way of checking what debt is “legitimate” and what comes from corrupt schemes. However, not much has changed on the situation of the Greek debt since this committee’s creation. In the reformists’ paradise, the capitalist crisis is managed without much effort, and justice prevails without a struggle. Unless a fundamental change takes place in the way the economy is run (that is, unless one breaks with capitalism), cases of corruption and speculation will keep on coming up. It is also suspicious to see how eager all parties were to approve of this new law, even the PSD itself. This can only mean that the law does not scare them in the slightest.

In their attempt to avoid putting the blame on the PS, which they have allowed, with their support, to be in government, the leaderships of both BE and PCP talk about the PSD’s irresponsibility and its part in the Banif scandal. The other ones to blame, as Costa mentioned already, are the European institutions, especially after the smear comment they made about this bank. They do not mention the PS’s responsibility in the matter, even if it is the party which ultimately made all the final decisions.

On January the 6th, Mortágua spoke again about Banif in parliament, where she condemned the act as a result of PSD-CDS policies and pressure imposed by the European Commission. She explained that Banif should have come under public control instead of being sold to Santander, and she stood firm against the selling of the banking system to “foreign interests”. She warned that CGD will be needing recapitalisation soon, and as she put it:

“Then, as now, we will all be called to decide not only between having a public or private bank, but if the country can accept the dismantling of its banking system to deliver completely to foreign interests. On that day, as now, the Left Bloc's response will be a round and resounding NO.”

In this way the BE leadership shows that their first priority is not nationalising the banks to protect the public interest, but rather their responsibility to keep the banks within the national sphere—whether it is private or public is a second question.

PCP on the other hand have warned on several occasions since 2007 about the games played behind the scenes of Banif. Though the solution suggested by the leadership of the PCP is close to the truth, it is nevertheless weak. Their solution is nationalisation of the banking system, but they do not go deeper into how and in what context. If they are not ready to put the blame on the PS, their suggestions are abstractions. Nationalisation is the key, but how and under what circumstances? Could it be under a bourgeois parliament led by a corrupt party whose name you choose not to pronounce?

The PCP have long understood the class background and intentions of the PS. The support of the PS government was a necessary evil, but as already warned in a previous article of ours, when the time comes the PCP leadership should be ready to put the blame on and be critical of them. They cannot pretend that the PS can bring about a socialist utopia. By calling for nationalisation without calling for mass mobilisation and the overthrow of bourgeois rule, they only manage to open a hole in the water.

Taking a “patriotic” stance, they explain that the EU’s and ECB’s constraints are incompatible with the national interests. Although in the past they had explained that the interests of big capital are behind these bank scandals, on their official statement after the Banif bailout they failed to do so. Instead, they chose to argue that the Banif case was an example of how the single currency has put countries such as Portugal in a disadvantage and has forced their states to bail out banks. Instead of taking a class perspective (like they did in July) and emphasizing that the crisis of capitalism globally is what has caused speculation and the collapse of the financial system, they blame it all on the EU. That is not to say that the policies of the EU are not to blame, but rather that the problem is a systemic one, originating in the inherent contradictions of capitalism.

By not explicitly putting the fault on the PS for the handling of this problem, the leadership of the PCP fail to recognise that the national interest is divided between the interests of the Portuguese bourgeoisie (which the PS government is defending) and those of the Portuguese workers. The problem does not stem from the conflict of interest between Portugal and the EU, but rather between capitalists and proletarians. By blurring the lines between national interests and workers’ interests, the leaders of the PCP risk becoming left-wing apologists for their own national bourgeoisie, and in this way alienate their rank and file.

Prospects of class struggle in Portugal

It is a party with the strength, the traditions, and the experience of the PCP that should be the first to openly explain to the workers the whole story behind Banif - not just half of it. With their recent boost in the elections, they should be confident enough to expose the bourgeoisie for what they are, and prepare the way for mass mobilisations of the workers and the students.

The austerity in Portugal is becoming more and more a normality while the crisis is getting deeper. The PS seems like it is not able to keep the façade of a left-wing government for much longer, and soon enough they will impose the same austerity to protect the interests of their class. While BE’s leaders are delving into reformist utopias, their rank and file, as well as PCP’s militants, should be prepared for a rapid development in the class struggle in Portugal. This struggle will not come within the parliament, and will not only be directed towards the European capitalists. It is necessary to put forward a series of revolutionary demands coherent with the struggles to come.

The Portuguese workers and youth expressed their frustration and willingness to fight austerity in the recent elections and the protests that followed. No one should have illusions about how far they will be willing to fight once the PS government betrays. Once the Portuguese masses move again, they will demonstrate how years of pain and suffering unite people against their common enemy, the bourgeois class. History is being written now in Portugal. It is the Left’s role and responsibility to make this chapter of history a bright one.