Monday travel and some austerity stories

There is no detailed blog today as I am travelling from Brussels to Sydney. I will resurface again on Tuesday after the long flight. When I wrote my blog on Friday documenting the austerity tour around Porto I forgot to mention a few things. This blog adds some more observations I have made of conditions in this part of the world at present.

Please note that some comments might not be approved until late Monday (EAST) as I will have limited Internet access.

Some things I forgot to mention about Porto

Privatisation madness – Portuguese government sell its electricity company to the Chinese government

Remember all the arguments about how state-owned companies are less efficient than privately-owned and run companies because there is no share market discipline.

These arguments were at the forefront of the neo-liberal privatisation scams. The main electricity provider in Portugal – Energias de Portugal – which is also one of the Portugal’s largest business groups was finally sold off in December 2011 to the Chinese Three Gorges Corporation for the measly sum of €2.69 billion (acquired the Government’s remaining 21.35 per cent share).

Need I remind you that the Three Gorges Corporation is a “state-owned Chinese power company”.

The other main shareholder (10.13 per cent) is the ‘Capital Group’, which is a private US investment banking firm. Oppidum (7.19 per cent) and Black Rock (5.06 per cent) are other significant shareholders.

Another shareholder (2.27 per cent) is the – Qatar Investment Authority – which is owned by the State of Qatar.

The result of the final privatisation: higher power prices.

Portuguese electricity prices are now among the highest in Europe and well above the average. For example, in Lisbon (as at November 2013), it costs 26.99 euro cents per KWh relative to the average of 20.34 cents per KWh (Source).

Price rises under the newly privatised EDP have been well ahead of the inflation rate, although there have been some concessions made (under Government direction) to so-called ‘social tariffs’ which allow those on low or zero incomes to receive cheaper power.

To (over)-compensate for the social tariffs, EDP has hiked rates above the low income threshold significantly.

The reality is that Portuguese electricity is very expensive relative to real income levels and the workers are now suffering from the squeeze.

Eurostat data shows that between 27 per cent of Portuguese are unable to heat their home adequately.

Innovations when income is short

I saw taxi drivers waiting in the queue at the taxi rank for customers push their cars up in the line when the first taxi takes off.

Income is tight in Porto and the pushing saves them petrol while they wait.

Photo Essay about the impact on youth of austerity

The old prison in Porto houses the – Centro Português de Fotografia (the Centre for Portuguese Photography).

Anyone who had the misfortune to be incarcerated in this building was in for a hard time. Access to the shared cells (large rooms) was by trapdoor in the roof. The building is all stone and the notes say it was very cold in the Winter.

After the revolution in 1974, the remaining prisoners were shifted elsewhere and the building fell into disrepair. It was renovated in the 1990s and now serves as a Museum for photography tracing the history of cameras, film and the craft.

It is well worth a visit if you are in Porto.

A current display considers a photo essay on austerity. The following sequence of photos displayed in this presentation are representative of what life for many young people in the North of Portugal is like now.

It was a three-panel display in the horizontal plane but so you can read the text I have enlarged the photos I took and arranged them vertically.

I believe the photos were taken by João Miguel Gomes e Silva, a Porto photographer.

The folly of the real estate/financial market nexus

The other day I said that it was hard to see the impacts of austerity and the GFC in the beach areas outside Porto. But further observation, near where I have been staying on the beach, is a failed real estate development, which was linked to the Espirito Santo Group (GES) disaster.

GES, the developers announced in late October 2013 that it was investing around 60 million euros on the venture that was meant to look like this. Of course, it wasn’t their cash but was to be added to the massive debt it was already holding.

It was meant to be a luxury beach front development on the southern bank of the Douro River where the top-end-of-town would be able to monopolise a key part of the local terrain with river and ocean views.

The sales gloss said that the development offered “excellent panoramic views of the Atlantic Ocean, Douro River and the city of Porto”. It was formerly part of the local food processing industry (a dried cod unit).

This is what they were planning to develop and make large profits from.

The 16 hectare site would have been a glorious location for a public park.

The Espírito Santo Group was a private company and so does not have to issue public records. So it is hard to trace the exact cause of its collapse.

The Espírito Santo Group collapsed in 2014 and the flow-on effects “led to a state rescue of Portugal’s second-largest bank in August” 2014, using bailout money from the European Commission and the IMF.

Reuters subsequently reported (December 11, 2014) that the company:

… was a financially fragile “house of cards” for years and its chief knew of irregularities there … the group’s financial situation was calamitous …

These revelations came out in a government inquiry into the “4.9 billion euro ($6.1 billion) rescue of” the – Banco Espirito Santo.

The bank was divided into two separate entities – a ‘good bank’ (Novo Banco) which retained all the viable assets and a ‘bad bank’ which held all the toxic assets.

It was bailed out by Portugal’s central bank in August 2014 and funded by the Portuguese Resolution Fund.

The Banco Espirito Santo was partly owned by GES but was heavily exposed, through a complex web of companies to other GES members (GES being the holding company for 300 other companies operating across 50 countries).

During the inquiry, it was revealed that the boss of the Banco Espiro Santo has been “manipulating accounts” to conceal debt exposures (Source).

It was also alleged during the inquiry that “the financial controller of GES, was probably also aware of the alleged manipulation of accounts” and GES was locked into a “debt spiral” that it could no longer service once things went south.

The collapse reverberated throughout the financial markets with creditors as far as Angola and Brazil losing heavily.

So as they were approaching their Armageddon they were still borrowing heavily and spruiking up business.

This is what the luxury estate looks like now. Nature is taking back the site and the roads, footpaths, drains etc that were constructed as part of the early development phase are becoming infested with weeds and other decay.

Conclusion

I will be back to more detailed blogging on Tuesday once I get home.

I have initiated a new research project as a result of my stay in Porto last week. It is true that many European nations started deindustrialising long before the crisis came and, in most cases, long before they entered the Eurozone. I am exploring methods to separate the effects of deindustrialisation out from the austerity.

Clearly in Portugal’s case, the suffering and demise has been driven by both events/processes. I have my thinking cap on!

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.