23rd Apr 2019

'Scandalous' submarine deal highlighted ahead of Nato summit

  • German submarines are contributing to Portugal's economic woes (Photo: ThyssenKrupp)

Nato leaders are heading to Lisbon for a summit on Friday (19 November) at a time of escalating economic problems in Portugal, due, in part, to a submarine deal, with corruption investigations launched both in Germany and Portugal into the way the deal was made.

US President Barack Obama and his European counterparts are likely to discuss Portugal's economic situation, a White House official said on Wednesday (17 November), as quoted by Reuters. Washington is "fully supportive" of Portugal's efforts to improve its debt situation, said Elizabeth Sherwood-Randall, a Europe expert at the White House National Security Council.

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The political support from overseas may however have little impact on jittery markets, which appear to be eyeing Portugal as next in line after a dramatic escalation of Ireland's borrowing costs, which may trigger a Greek-style bail-out in Ireland in the coming days.

Lisbon's borrowing costs doubled to 4.8 percent in less than two weeks, with investment banks such as Brown Brothers Harriman warning clients that "if Ireland gets an aid package, markets are likely to sooner or later push for a deal on Portugal," the Wall Street Journal reports.

With a minority government and an austerity budget passed by a razor-thin margin, Portugal is struggling to shake off market speculation.

Unlike non-Nato Ireland, whose record public-deficit of over 30 percent is mostly due to bailing out banks in the wake of the financial crisis, the southern European country's accounts are also weighed down partly by a controversial submarine deal with Germany that dates back to 2004 but that has to be paid for now.

Signed during at a time when current European Commission chief Jose Manuel Barroso was head of the Portuguese government, the deal worth €1billion is the biggest military purchase in the country's history. Payments for the two German submarines amount to 0.6 percent of the country's gross domestic product (GDP), at a time when the budget deficit reached of 9.3 percent of GDP last year.

According to Portuguese Socialist MEP Ana Gomes, the country's current centre-left premier, Jose Socrates, has been "very vocal" in blaming the submarine purchase for the country's widening deficit and to justify the austerity measures that were adopted last month.

With corruption investigations launched both in Germany and Portugal into the way the deal was made, Ms Gomes has called the deal "scandalous".

"What we don't see is political courage on the part of the EU institutions, notably the European Commission, to actually tackle this question of corruption that is at the root of the current crisis. Corruption in the management of banks, which were not properly regulated and supervised and corruption in the public sector in relation to defence procurements."

With a similar submarine corruption probe involving the same German company (Man Ferrostaal) being investigated in relation to Greece, the first euro-area country that needed a bail-out, Ms Gomes said it is unacceptable that Brussels is not launchig an inquiry into "this European web of corruption."

The Portuguese MEP said she is "disappointed" that her government has not stood up to the German administration and frozen payments until the corruption case is finalised: "It would have been a courageous gesture to show that Portugal is a country whose people are victims of corrupt practices between German and Portuguese officials and companies."


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