Bank of Portugal slams EU ‘interference’ in financial sector

Bank of Portugal

The governor of the Bank of Portugal has called the measures that the European Commission has taken by obliging banks to take state aid, unwarranted interference in the sector, and argued that they harm the interests of southern European countries.

“It was something that I have always opposed,” Carlos Costa said at a conference in Lisbon on banking regulation and supervision. “From the first day that the [commission’s] Directorate-General of Competition came in here I have thought it illegitimate and inadmissible that sector policy is made on the pretext of state aid.”

According to the Bank of Portugal governor, during the global financial crisis banks were supplied with state aid “without limits” and only later was a “disciplinary framework” imposed on these institutions, until the situation of today has been reached in which for the commission to accept a state granting aid to banks they must undertake a restructuring. This, Costa argued, means that there is “a sector policy on the pretext of [imposition] of help”.

Costa said that he had expressed his opposition to such demands to the commission’s competition officials.

Portuguese banks that sought state aid in 2012 to boost their capital levels were obliged to undertake a restructuring of their businesses in line with plans that had previously to be approved by the commission. This included a reduction in scale through the sale of assets, redundancies and branch closures.

This year, the increase in capital for state bank Caixa Geral de Depósitos (CGD) was approved only thanks to a fresh restructuring plan that has been very controversial, not least because of the closure of branches in rural areas, with locals repeatedly staging protests. CGD’s chief executive, Paulo Macedo, was present at the Lisbon conference at which Costa spoke.

According to the bank governor, the “current rules are a bare-faced and inadmissible invitation for an [unequal] treatment of the North and South of Europe”, so damaging southern countries. He argued that the “big threat” to the European Union just now “comes from the rules on state aid and on capital injections in terms of burden sharing”, while stressing that he is not concerned with Portugal’s “problem” because it has now been “completely overcome”.