This article is part of an article series about Europe's Recovery and Resilience Facility. It has been enabled thanks to the kind support of Recover Portugal.
The European Commission is being pressed for answers on whether a six-year long banking scandal in Portugal warrants further intervention from Brussels.
A recently filed Parliamentary question to the Commission penned by Portuguese EPP MEP Nuno Melo homes in on Portugal’s 2014 Banco Espírito Santo (BES) case and presses the EU executive for a response.
Back in 2014, Portugal’s central bank had intervened in the operations of the flailing BES, transferring stable assets to the Novo Banco, while maintaining toxic ones in BES. However, the Portuguese central bank then proceeded to retransfer €2.2bn worth of bonds back from Novo Banco to the toxic BES, after the former started experiencing problems itself.
However, the five lines of bonds that were retransferred back into BES had all been held by international institutional investors, who fear that their assets were selected on a discriminatory basis. Their concerns have since been subject to a series of court hearings in Portugal, so far to no avail, and now they would like Brussels to impose pressure on the authorities in Lisbon to find a solution. For his part, MEP Nuno Melo wants the Commission to address the issue directly.
Investors, under the banner of the Attestor Capital fund, have since embarked on a campaign in Brussels to raise awareness to their plight, particularly in the context of the EU’s €672.5bn recovery package, which will once again rely on the involvement of international institutional investors to bankroll Europe’s recovery.
Bearing in mind investors’ frustrations at the BES case, Melo feels that it’s important for Portugal’s future economy to still be able to secure the confidence of investors and remain a business-friendly environment. As part of the bloc’s recovery fund package, Portugal is set to receive €13.9 billion in grants and €2.7 billion in loans until 2026.
Those funds, Melo believes, “will represent a unique opportunity to invest, but also to implement crucial reforms that could help Portugal have a more business friendly environment,” the MEP said at a recent policy event hosted by The Brussels Times.
Meanwhile, the institutional investors who had found themselves at a loss following the BES case, have since been seeking recourse through the Portuguese courts. But proceedings have as yet yielded very little progress. Frustrating legal proceedings in cases such as these, Melo says, will no doubt spell more risk of investment in the country. “If a court takes let's say, five, ten years or fifteen years to decide a conflict…it cannot be said that there is no risk of investment,” he said.
The Portuguese MEP was also forthright in his criticism of alleged corruption in the Portuguese Central Bank. “The Portuguese central bank has detected unbelievable practices of issuing credit without any guarantees, providing investments into ghost companies, and offshore schemes,” the MEP said.
“Supervision of the Portuguese National Bank has done nothing effective, not only to avoid these practices, but also to convict those responsible,” Melo added.
Meanwhile, there has been ever-intensifying scrutiny in Brussels over the dispensation of EU funds, and the assurances from the Commission that such will be tied to compliance with the bloc’s treaties, in particular the Rule of Law.
The Recovery plan backed by EU member states includes a conditionality mechanism, binding the funds with the obligation to abide by the principle of the Rule of Law. Concerns of breaches against this principle have conventionally been levelled at Poland and Hungary for breaches of the independence of the judiciary, but are also seen more widely across the EU, including in Portugal, where the Commission’s 2020 Rule of Law report found various cases of high-level corruption in the country‘s judicial system, specifically with regards to the allocation of cases by courts.
For its part, the European Parliament has backed reports threatening legal action against the EU executive should it fail to impose obligations on member states to respect the Rule of Law.
In March this year, the Parliament adopted a resolution noting that should the Commission fail to uphold the EU’s financial interests and values in ensuring that the distribution of EU funds is tied to compliance with the Rule of Law, it would “consider this to constitute a failure to act” and would take the EU executive to court.
More recently, in early June, MEPs in Parliament’s Civil Liberties committee, backed a text lamenting the ‘stark deterioration’ of judicial independence in the EU, and highlighted the Commission’s previous failures to intervene effectively considering various abuses across the bloc.
Stakeholders wider afield in Brussels have applauded the Commission’s conditionality mechanism and have been keen to ensure that the clause is enforced as necessary.
“The decision of the Commission to link the rule of law to the budget and to the possibility of taking away money from member states, was a very good one,” Annemie Turtelboom, European Court of Auditors member, told a Brussels event recently.
“If there is not a proper rule of law existing in a certain member state, then down the road, that will be an abuse of money,” Turtelboom added, noting also that if the recovery funds are “not well spent” in the future and victims seek recourse through a court system that it not independent, then “you can be pretty sure that they [abusers] will not be punished in an appropriate way.”
For its part however, the Commission has paid little heed to the challenges of judicial independence in Portugal. In mid-June, the country became the first EU nation to have its recovery plans approved by the EU executive, with the money set to be distributed in July.
Commission President von der Leyen praised the approval, saying that it will “deeply transform Portugal’s economy.” Portuguese Prime Minister Antonio Costa told reporters that “the hard work begins now,” following a turbulent 18 months during the coronavirus pandemic.
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