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Following are excerpts from the transcript of a CNBC interview in Davos by Geoff Cutmore and Steve Sedgwick with Manuel Caldeira Cabral, the Economy Minister of Portugal.
GC: In Portugal, fears again were raised about the strength of the southern European banking sector. On top of that, of course, concerns that the Commission may not approve Portugal's overdue 2016 budget proposal, this as the country is due to elect a new President on Sunday. Manuel Caldeira Cabral joins us, the Economy Minister of Portugal, good to see you, sir.
MC: Good morning.
GC: Thanks very much for coming up. Just clear up for us where we are, then, on the budget proposal for 2016?
MC: The budget proposal that was presented improves the budget more than what was predicted, so our budget deficit is going to be more reduced, and we are going to be in 2.6% of GDP, so well below the level of European commitments. So that is good news, and I think it is good news that is possible also, because growth is increasing, it's going to increase in the coming year, well, in the present year, now, and that helps not only to stabilise the public account and to reduce debt, but also to reduce unemployment and so on.
GC: What message do you have for the Commission here? Because it appears that they may not approve this budget.
MC: I think that Portugal is doing an important effort and is strongly committed to consolidation of public account. I think we are working with the Commission and what we expect to see is that the Commission gives credit to these efforts. Portugal is doing its job, it's not an easy job, it's becoming easier with the increase of growth that is spreading all over Europe, but in Portugal we are going to have a speedup of growth that is faster than in some other countries, and that is a positive thing.
SS: So there's no rolling back on austerity, then? Because after the election, we weren't sure whether the Portuguese population had rejected austerity or backed austerity, or said enough from this, we need to move forward, but you think things have actually got the right mix at the moment? You talk about unemployment coming down, growth increasing, the deficit stabilising at 2.6%. Geoff mentioned that 2.8% yield on the ten year, to me that still looks incredibly low on a historic basis.
MC: I think the yields have varied in the secondary market, but we showed that last week, and we got the spread towards Germany decreased, and actually we issued that this week with negative interest rates, for short term debt, true, but negative interest rates in Portugal, I think it shows that there is confidence with the investors, and I think the investors are also showing confidence in real investment that creates real jobs. We have Volkswagen, we have Bosch investing in Portugal. We have a series of new investments that are going to create jobs and growth, and we have a very good export base that is growing, and I ask the investors to pay more attention to that. Look at the numbers of the exports in Portugal, look at the numbers in tourism, which is a quite important sector. The economy is growing and is getting in a better pace, and the financial system and the public accounts are going to get better, as well. That is our commitment.
SS: You mentioned financial system, because all of a sudden, all of a sudden, we're worrying about Italian banks again, and if we're worrying about Italian banks, they're going to start worrying about Greek banks, and if they're worried about Greek banks, eventually they're going to cross the Med and they're going to start looking at Portuguese banks, as well. The last time I was down in Lisbon, it was about a crisis that came out of nowhere, it was Banco Espírito Santo, as well. Are you confident that the Portuguese banking system is robust and fully accounted for in current exposure? I.e. we all know what's going on now?
MC: We are making an effort to promote capitalisation of the financial system, and of course what I would strongly reinforce is that there is no connection between Portuguese banks and Italian or Greek banks, so I don't know about the banks in these countries, but I think sometimes these connections don't have any economic basis, it's just psychological, so-, but I think we are reinforcing the capitalisation, we had problems in our banks, some of them were unexpected, some were not that unexpected, and now things are more stabilised and it was a strong effort to stabilise them, for public accounts, as well, but I don't see in the coming future any additional problems, so I expect the system to stabilise.
GC: Now, just give us a few words on Sunday, because a lot of people are worried about this presidential election and they're not sure that your government is going to last its full term, particularly if the President who is elected is one who dissolves the legislature because he doesn't like the socialist coalition. What's going to happen?
MC: I think the frontrunners are moderate candidates and all of them committed to maintain the government and to maintain the legislature. The centre right wing candidate is quite moderate, and it was quite sure about that, that he is going to maintain the government and the legislature and that he's going to maintain it as far as he can. So there is this commitment from all the candidates, so I don't think that the presidential election is going to bring any surprise or any problem to the government.
GC: Are you convinced that the government can last its full term though? Because I think there is still some nervousness that the coalition will break when it comes to a policy, the next policy that there's widespread disagreement on, particularly on the economy.
MC: I think that the government has conditions to last for four years, and it all depends, it depends a lot on us. On the ministers, on the government, if we do good policies and the people are supporting us, we will last the four years. If we get a bad rate from the people, I think, of course, we may have problems, but that is what we have to do, an effort to guarantee that we are up to our promises, that we are up to the consolidation of the public accounts and to making the life of Portuguese people better.
GC: Thank you so much for being with us here.
MC: Thank you very much.
GC: The Economy Minister of Portugal, Manuel Caldeira Cabral.