The EU turns to Portugal for leadership

Ursula von der Leyen, president of the European Commission, was in Lisbon on Jan. 19 to meet with Portugal’s prime minister, Antonio Costa, at the beginning of Portugal’s six-month presidency of the Council of the European Union. It marked a critical moment.

In response to the coronavirus pandemic, the EU agreed last year under Germany’s presidency to the largest stimulus package ever financed by the EU, which needs to roll out fast and effectively.  The package consists of €1.074 trillion ($1.3 trillion USD) under the Multiannual Financial Framework (MFF) for 2021-2027 and €750 billion ($910.6 billion USD) of short-term financing under NexGenerationEU “to repair the immediate economic and social damage brought about by the coronavirus pandemic.” The MFF includes support for the European Green Deal, as well as support for a “digital Europe.” The special provisions require ratification by member countries.

The EU’s presidency is a formality rotated among countries. But at this moment, Portugal exemplifies the leadership that the EU needs in troubled times.

Since 2015, when the current minority Socialist government came to power, Portugal has been a model of foresight, stability and effectiveness. Portugal is the under-appreciated success story for EU countries looking for a demonstration of leadership beyond Germany, whose chancellor, Angela Merkel, will step down later this year.

Portugal was hit hard by the 2008-2009 financial crisis. It narrowly secured International Monetary Fund and EU support for a fiscal austerity program in 2011 but, like Greece and Italy, it suffered a decline in popular support for the government because of the social impact of austerity measures. Portugal already had among the lowest GDPs per capita in the EU, comparable more to the eastern European members such as Poland or Hungary, and it experienced both negative economic growth and double-digit unemployment.

Then in 2014, Portugal suffered a banking crisis with the spectacular collapse of one of its largest and most venerable banks, Espirito Santo, because of massive mismanagement and corruption.

But in 2015, in a close-run election, the minority socialist party led by Prime Minister António Costa was elected through an expedient alliance with leftist parties. Costa and his coalition set a pragmatic course, balancing fiscal discipline and debt reduction with policies to support incomes and other social programs. Aided in part by good timing as the pace of the EU economy picked up, by 2017 Portugal achieved its lowest budget deficit in 40 years and was returned to investment grade by the major grading agencies. The economy strengthened and unemployment fell.

Looking back, Vincent Bevins wrote in The Atlantic in 2019: “[Portugal] managed to raise the minimum wage, lower unemployment, nearly eliminate the budget deficit, and maintain good relations with Brussels,” and quoting Portugal’s secretary of state for energy at the time, “We showed that you can improve public finances and improve living conditions for the public at the same time” and “that being part of the European Union doesn’t only have to mean cuts.”

Portugal might have turned inward but it did not succumb to populism in the manner of Poland, Hungary or the United Kingdom by rejecting EU policies and succumbing to economic nationalism and xenophobia. Costa’s government — reelected in October 2019 — maintained its discipline, its vision of socially pragmatic policies, and its support for EU solutions. Portugal weathered its repeated crises because its political leaders recognized the dangers, collaborated across political interests to secure a consensus, and enacted a rational balance of spending and fiscal prudence that provided support to ordinary people and stabilized government finances. 

A focus on governance, not on power, preserved Portugal’s social balance while allowing it to move steadily out of crisis. In fact, Portugal’s approach is inherent in the new EU budget with its stimulus spending that targets the most affected and vulnerable segments of society and business while supporting fiscal prudence through new, modest sources of revenue that align with the overall objective of the spending package.

Afflicted by all the maladies of the age — including the impact of climate change and population decline — Portugal has remained stable and has slowly improved, despite a very bad, just awful, year of pandemic. The presidential election on Jan. 24 may test Portugal’s cohesion as the coronavirus surges there and across Europe, but the foundation for sound government is well-established with the current government.

On Portugal’s assuming the EU presidency, Foreign Minister Augusto Santos Silva asserted the country’s vision: “It is important to show that part of the democratic identity of Europe is not only having a market economy, but one that also has a strong social dimension, that we are a liberal democracy that is also socially advanced. That is the best antidote against populism.”  

Prime Minister Costa, in laying out his government’s plans, emphasized carrying out the EU’s strategic decisions of the past six months, including a strategy for vaccinations, the seven-year spending plan and coronavirus recovery program, and advancing the EU Green Deal. As Foreign Minister Santos Silva explained, “Our responsibility is to put those decisions into practice and produce results.” In addition, as a keynote for its EU presidency, Portugal will host in May a social summit to discuss social rights and protections. 

Portugal has demonstrated principled and coherent government through discipline, competence and focus on results — not catering to the passions of extremism at either end of the spectrum.  Above all, Portugal has maintained a vision for a better European future after the crisis. 

Some other EU countries have shown the same leadership, in their turn, by displaying the same capacities, including Germany, Lithuania and, even outside the EU, a struggling Ukraine that aspires to join the club because its people share the vision of a democratic and prosperous country in the spirit of the universal values captured in the European Union Charter. These are the elevated principles and the everyday values of enlightened leadership.

Dirk Mattheisen is the former assistant secretary of the World Bank Group in Washington (2008-2012) and alternate secretary of the World Bank board Ethics Committee. He advises international economic and financial institutions on corporate governance. Follow him on Twitter @DirkMattheisen.