Following is the transcript of a CNBC interview with Silvia Amaro and Mário Centeno, Finance Minister of Portugal
SA: Good morning Mr. Centeno and thank you for joining us. I would like to start by understanding your plans for the Eurogroup. Your predecessor Mr. Dijsselbloem was very much perceived as a center right politician in favor of austerity. Can we expect a different approach from you given that you're part of a socialist government?
MC: Thank you, thank you for visiting me, and for having me on your programme. It's gonna be two quite intense years, two and a half. I am very much looking forward for it, and to work with my colleagues. That's the basic thing of being a president of the Eurogroup is to be able to bridge opinions, be very constructive in the debate. I have a very firm opinion on the whole process that Europe has gone through, the importance of the reforms. But also, on the importance for all the institutions to back these reforms, and to provide time and demand as I tend to, and I'd like to portray it, in the future.
This means that that we have to (Centeno cuts sentence here). It's not really a change on being pro or against austerity. It's understanding that the supply response that we got from the reforms now need to be matched, with some demand response and Europe is in a very good position to do it. This is the only way also to make possible that our citizens, the European citizens, understand the big effort that not only each nation by itself made during the last decade on reforms, but also the euro area and the European Union as a whole. We reformed the Eurozone, we have a much more resilient monetary union these days. This is very important. So now it's time to reach health for our citizens and to allow them also to reap the benefits of what we did.
SA: You said recently that certain European policies are not taking into account the specific economic conditions of certain Member States. What needs to change in this regard?
MC: We need to end the fragmentation of the financial sector in Europe these days. It was one of the fastest achievements in the early stages of the Euro. But then, with the crisis - with the financial crisis, things were completely, not completely, but very much put into question, and we now have a clear financial fragmentation. That is very much detrimental for the impact also of monetary policy. If we don't have the mechanisms, the transmission mechanisms of monetary policy that works through the financial sector, we kind of, cannot take all benefits from the monetary policies of the ECB.
So we need to complete the banking union. It was a huge step. It was one of the major changes that occurred recently in Europe, was the implementation of the banking union. But we have to complete it. So this is something that we all agree around the table - at Eurogroup, I must say. Of course, that completing the banking union means slightly different things for each member of the Eurogroup. We have to try to focus on the common ground that we certainly have, and we do have it - it exists. So there is margin to improve the banking union and this will further reduce this financial fragmentation that we have in Europe these days. Also we do understand that convergence is a buzzword that will also keep repeating, and we need to work together to promote convergence in the EMU as well. It's a long process. So that's why I think time and patience is of essence, in terms of the policy direction of Europe. We need to make affirmative steps and take them, and there's a road map that we have to agree in the next couple of months and then we have to keep our action also in a very determined way to achieve these goals of smoothing out the tension. And, it's not really divergences but a little bit more, the difference is that that we have vis-à-vis, the progress we have to make.
SA: So do you agree with President Macron's push for a multi-speed Europe?
MC: Europe has been constructed in essence in this way, so that's not really a novelty, if we have to face it in the next steps. We do need to make progress, and if this progress has to be tailor made according to the willingness of countries to go forward faster in specific areas, I think that will not be a problem. And that is not also something new in the way Europe has been constructed. We have very big achievements in the last decades in Europe. The very long process of prosperity and peace that we established in Europe with the construction of the European Union can always be questioned, but it has to be evaluated, and the evaluation is very positive. So we need to keep building the consensus, and if that's the choice of member states, we need to be flexible. As President Macron certainly put it in his speech in Sorbonne.
SA: Mr. Dijsselbloem was in the European Parliament last week, and he said that you're not going to be able to change the Eurogroup significantly. And when we look at the top European positions right now, they are in the hands of centre-right politicians. So do you fear that the current political landscape will constrain your job as Eurogroup President?
MC: There's a very positive sign in the current political situation in Europe, which is that several countries and several important countries I can say, in Europe, are starting new political cycles. And this is the key issue for political reform and for the reforms we have to implement. It's very important that we have this coordination of political cycles.
And if you look, you have this very strong push that you mentioned, by President Macron. You have a new political cycle starting in Germany, and also the upcoming elections in Italy will also contribute to this fresh political cycle. This is key, because it's even a very rare event in Europe that all major countries start political cycles at the same time. And, we have to benefit from that and we have to profit from that and take this opportunity as one of the big contributions to build this new cycle. Also you have the commission, and President Junker has been quite affirmative on this as well. And so, this is the political situation that I think it's very much favorable to reforms. We can also take the economic situation of the Euro area at this stage as a positive sign for that. It's much easier to discuss these issues as President Junker put it; when there is sunshine outside, and we are growing - all countries in the euro area are growing above 1.5%, unemployment is falling very much, we have a quite balanced fiscal position, as well as external position. The euro area as a whole has a quite balanced external position. These are indicators that are not shared by other economies. For example, the US faces big challenges in terms of the fiscal situation or the external trade position. The same thing is true for the UK. The euro area, in this respect, can present itself in a much better position than these other economies. And we also have another positive thing - which is since we have plenty of things to complete, we are still far away from the potential of growth that we can achieve quite easily if we all agree in implementing the reforms that President Junker communication (communicated) in the European Parliament also mention.
In respect of your comments on President Dijsselbloem, reference to what we can expect from the next two years and a half. I think we need to build these expectations in these very firm grounds on political and economic situation. And the new President of the Eurogroup can only be an actor of triggering and developing the new basis for consensus. And I promise that I'll do my best on that.
SA: Picking up on the proposals from the European Commission - These proposals include a new European Monetary Fund, Economy and Finance Minister for Europe. Do these measures fit your vision to reform the Eurozone with patience?
MC: Yes, these are two directions that are worth exploring and we need to find decisions and common positions in this respect. It's the completion of the banking union which also needs a more stronger and also faster decision making process framework which can be achieved through the European Monetary Fund, and the position of the Minister of Finance for the euro area is very important as a beginning of the process of establishing a more, also in this respect complete, institutional framework for the euro area. An economy needs integration of fiscal policies, monetary policies, and we need to do that for the euro area as a whole without these representing further transfer of power to Brussels. It's the problem of coordination.
I mentioned previously the coordination of the political cycles which is quite quite important. We also need to coordinate on policies. This multilateral situation that we have, which is quite positive in the euro area, it's quite challenging, but it also can bring benefits to, to everyone if it really is coordinated.
SA: These measures are to be adopted by mid-2019. We will have European elections in the first half of 2019 as well. Could the timing of the European elections impact the plans to reform the EMU?
MC: Well, I don't expect that to happen. It's the construction of Europe goes from the countries to the top. We now have the fresh cycles coming from countries. We need to build on them. And I will see the European elections as the final stage of this road. And we can certainly expect the stream of reforms to be supported, and in some sense confirmed by the election in 2019 of a new European parliament. The position of the President of the commission is to have a very strong end of his term, and we expect that to be accomplished. We, in the Eurogroup and myself certainly as the president-elect of the Eurogroup will be very in determined in seconding his desires and positions vis-à-vis these reforms.
SA: At the moment we are at a political impasse in Germany and soon we'll have elections in Italy. Could these political events create shocks for the eurozone next year?
MC: We've been discussing the next election and the next political debate in each of our countries to be the possible reason for problems or difficulties in advancing. But, if you look back and you see the results of the Dutch election, then of the French election, also somehow of the German elections, we have been able, in Europe, to find solutions that are pretty much at the core of the development of Europe. I think the European citizens, although there is a spectrum of opinions in each country - more to the right or to the left - that's natural and that's also very European (laughs) in many senses -which is very good, to see Europe alive in its political and cultural diversity. But, as a matter of fact, the solutions that have been implemented, following each of these elections, were certainly very constructive and positive for the European construction. So, yes we can wonder whether you may have more problems in one country or the other to find a solution. But looking back to the last year elections, the good thing is that we were able - each country was able - to find its way, in terms of finding a political solution, that is completely aligned with this European vision that we all share. So I won't be quite so worried about it.
SA: Political risks aside, what other risks could there be for the Eurozone next year?
MC: Well certainly we have to follow up on the Brexit process that I expect to be understood as structural reform. And we politicians need to give time for economic agents to adapt to these structural changes.
It was the choice of the UK citizens to vote for the Brexit. And we have to accommodate that in our policies. And to take the best out of this process, given that is a slight shock and change vis-à-vis the past. This is something that we have to follow up very closely, and to be very positive in the solutions that we find to accommodate this, in our policies. We are about to reach a very, very, long already, recovery process in the euro area, which is now shared as I mentioned before, by all countries. And we need to understand that the economy has cycles and we need to be prepared. So this road map is very important to be accomplished in the next year, so that major changes are adopted by mid-2019, because the economy has cycles and we need to prepare ourselves to what can be in the near future reversion of this positive mood. And we need to face it not in panic mode, as we did before, but reassuring ourselves and our citizens that our economies are much more resilient today than they were before. And this is good for them. And we are prepared to these changes. So being prepared for what comes as challenges for policy making in the next year or so is very important for us in 2018.
SA: Is Brexit a positive risk or a negative risk for the Eurozone?
MC: Well, given that it is a structural change and I mentioned before and it was a choice from one part of Europe which is the UK, I won't say that it is a positive risk. It certainly brings about the difficulties and the changes - that if you ask me, if I rather prefer not to have it, that will be my option. Which is not to say that the counterfactual will be leaving everything as it was before, because, I think we need to continue deepening our relationship within the European Union and the euro area as well.
We are the largest single market in the world - the euro area and also the European Union. And we have to take advantage of that for our economy for the mobility of our workers for all our investors which are both households and firms to reap the benefits of their investment.
And we are learning to do that, because even if we think that 30 years is a long period of time for economic adjustments, it sometimes isn't. For convergence purposes - for example, if you take the US example, it's a more than 200 year old monetary union with a very large single market in the sense of free movement of people and goods and services in the U.S. - although sometimes not that free (laughs), because there are restrictions yet. But it's a much older monetary union and we still are observing convergence among US regions and US states. So, this is a very long process. We don't need to, we politicians should not over sell this idea that we are going to converge and the good times are at reach of a couple of years' time. That won't happen. It really needs to be a long process.
But the Brexit is a challenge, and it's a challenge in the sense that it's a negative shock certainly for all these economies. That's my evaluation. But, from a negative shock, we can and we should build positive solutions and explore in the best way we can, the alternative ways that we may face in the future.
SA: One of the upcoming topics for you as Eurogroup President is Greek debt restructuring talks. How do you intend to bring together the IMF, the Eurogroup, and Greece over the upcoming discussions?
MC: Very well. There are still some intermediate steps (laughs) up until that these talks begin. We need to complete the program. We are in a good mood to finish it by mid-2018; August 2018. We hope that the Greek authorities continue the outstanding work they've been doing in the last years to accomplish all the measures and all the targets that we have in the program that are very much demanding. And then, going back to this idea of reforming, having patience - and so, what the situations need really to back the Greek authorities in the process after the reforms. Because we experienced that in Portugal - the reform process is quite demanding, and we need the backup of institutions in the post-program period. But, the post-program period usually brings about also more ownership of the process for the countries. And these need not to be a disturbing period. On the contrary, if we have this smooth position also from the authorities, from the institutions, outside the institutions on the national authorities. The roadmap is also very clear, we agreed back in 2015 on how the process can be accomplished. So we need to fulfill the next steps. And then, after the exit and the final steps of the program we really need to start discussing the measures that we have to discuss, on the debt. Again, the medium term and the more long term measures have already been discussed. And if we are all comfortable, and I hope we can be at that stage, on the final revision of the problem, we can and should start these discussions. It's very important for the process to be successful that Greek authorities keep delivering as they have been and the institutions to be also on board for this.
SA: You mentioned the IMF. It's true that the IMF has been involved and they've been an important player into this, sometimes if not for anything else, (but) to generate counterfactual analysis; because sometimes the institutions differ in their analysis of the economic situation. We have also to smooth that out a little bit. I think we were not completely successful in doing that. But, if we go along also the proposals for Europe, on the creation of the European Monetary Fund and the other reforms that you just mentioned previously in this conversation, I think this will help a lot on the way also, the Greek debt can be framed into this process. We cannot deliver for the market the idea, or the singular perception that we question the value of national debt in Europe. We need our countries to have access to these types of financing conditions. Portugal was able to make a great comeback to the markets. We need Greece also to make the same thing.
MC: I know that the Greek authorities are following, very much, the Portuguese example, and this is the way I will consider that Greece has to be also framed in the upcoming discussion on that.
SA: So do you expect a deal on the debt issue before or after August?
MC: The roadmap is to complete the program and along with that, and so the discussion will continue certainly after the conclusion of the program for us to be able to have already common ground to discuss that in that precise moment.
SA: Some of your European partners sent a letter to the United States noting that their plans to change the tax system was at odds with international trade rules. How could Europe prevent the US from changing its tax system?
MC: Well, we have been working together quite closely for a long period of time already in OECD Forum with the BEPS process for example, being a key example on how the cooperation among different tax jurisdictions may have an impact on reducing tax evasion and preventing countries from competing among themselves in a detrimental way towards generating positive impact at home, that at the end of the day end up being quite negative for the world economy - if I may put it like that.
And we think it's our obligation to work with the U.S. authorities in order to prevent this to happen. And I will say to happen again because we already saw the negative impact that, on occasion, we may suffer from this type of tax competition.
Firms today are multinational firms. They are not U.S. firms or European firms. They are firms where most of those firms work in many, many countries. And we need to have a comprehensive tax policy that in a coordinated way again, may prevent some disruptions to trade and to location decisions of these firms to happen. We understand the concerns of national authorities - in this case, US authorities, vis-à-vis tax revenue and the way this tax revenue is generated. But, we think that the way the globalization process helped our economies to advance and to go further cannot be now put into question by policies that, even if they are understandable in a national perspective, they have to be coordinated among trade partners. Very real trade partners and very important ones as Europe and the US are. So this was discussed in the last Ecofin, this issue on tax and tax policies. And I perfectly understand the worry of my colleagues that wrote that letter, and we are in a very constructive position to help all of us to reach a consensus in terms of how to deal with these tax revenue issues in each of our countries.
SA: Fitch Ratings is set to update its grade on Portugal this Friday. Is this the catalyst that Portugal needs to attract more investment?
MC: Well, I won't say to you the catalyst, but it certainly will be an important decision for the country. Which is important because there were previous decisions that, during 2017, enabled us to advance a lot. It was a very impressive improvement of our financing conditions throughout 2017. First of all with the abrogation of the excessive deficit procedure in April, made by the European Commission which follows in improving the outlook, for example by Fitch, during the summer. And then, in September one of the key decisions which was the rating improvement by Standard and Poor's in mid-September. That put us for the first time in many years, as investment grade by one of the three biggest agencies. Certainly an upgrade by Fitch will continue this process. We assure everyone on the very positive situation that the Portuguese economy is at this stage. We just have a vision of the financial sector, the increase, the acceleration of economic growth, the very very fast reduction in unemployment that we've been observing in the last year -which is the fastest since 1998-, which is very important given the maturity already of the recovery process in Portugal. So yes, we are looking very much for what Fitch may do on the 15th of December. And, if a positive outcome appears, it will be another step in this process.
SA: Thank you very much, Minister.
MC: Thank you.
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