Portugal’s banking tiff puts Mário Centeno under pressure

Dispute with PM António Costa revives speculation on future of Eurogroup president.

LISBON — The Portuguese government has averted a crisis that sparked speculation Eurogroup President Mário Centeno would resign as finance minister because of a tiff over a €850 million state loan to a loss-making bank.

After a three-hour huddle with Centeno late Wednesday, Prime Minister António Costa issued a statement reaffirming his “personal and political confidence” in the finance minister. The meeting followed days of tension between the two men and opposition calls for Centeno to resign.

“Centeno can’t stay,” Rui Rio, leader of the center-right Social Democratic Party, tweeted earlier Wednesday. “A PM who keeps a disloyal minister is in trouble.”

Although Costa and Centeno patched up their differences, the dispute intensified speculation that Centeno won’t seek a second term as president of the Eurogroup and will step down as minister this summer, possibly in a move to the governor’s office at Portugal’s central bank.

The spat began last week when Costa was embarrassed in parliament, seemingly unaware his government had transferred €850 million to a fund propping up Novo Banco. Costa had previously told parliament there would be no new state aid before the results of an audit into Novo Banco’s finances.

With Costa under pressure, Centeno admitted Tuesday to a “failure in communication” with the PM’s office over the transfer. However, Centeno said the loan was accounted for in the government’s 2020 budget and the state was legally bound to transfer the money under a 2014 plan to support Novo Banco.

“Centeno is weakened by this incident, even if he was in the right as far as the legal contract to support Novo Banco is concerned,” said Helena Garrido, professor of economic journalism at Lisbon’s Universidade Lusófona.

Novo was created from the wreckage of Banco Espírito Santo, Portugal’s second-largest bank, which fell victim to the financial crisis in 2014. The new lender has struggled to avoid losses and continues to receive capital injections through a resolution fund financed by loans from the state and the financial sector.

Despite the dispute, Costa was loath to lose his finance minister as he coordinates efforts to keep the economy afloat through the pandemic. The European Commission’s forecast of a 6.5 percent contraction in Portugal’s economy this year is among the more optimistic.

Centeno is also chairing efforts within the Eurogroup — finance chiefs from the 19 euro countries — to agree on a recovery plan to mitigate COVID-19’s economic impact.

Nicknamed the “Cristiano Ronaldo of finance,” Centeno has been a star in the Socialist administration that came to power in 2015. He’s overseen five years of unbroken growth and was credited last year with securing the first balanced budget since democracy was restored to Portugal in the mid-1970s.

However, Centeno has faced criticism for his handling of sensitive Eurogroup meetings, and there is growing speculation that he will step down at the end of his term in July. In Lisbon, he is touted as a possible replacement for Bank of Portugal Governor Carlos Costa who is also due to leave this summer.

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