Portugal PM Quits After Chief of Staff Held in Corruption Probe

(Bloomberg) -- Portugal’s Antonio Costa unexpectedly ended his eight years as prime minister after revelations about an investigation into possible government corruption involving lithium and hydrogen projects.

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The resignation on Tuesday came as police raided locations including offices used by the premier’s chief of staff as well as the environment ministry and the infrastructure ministry.

Costa, 62, has been prime minister since 2015 and ranked among the longest-serving leaders at European Union summits. At a press conference in Lisbon, he said he has a “clear conscience” and is “fully available” to cooperate with the investigation. He added he won’t run in the early elections that the Portuguese president will now likely call.

“It is my understanding that the dignity of the function of prime minister is not compatible with the suspicion of any criminal act, which is why I obviously presented my resignation,” Costa said.

Costa led a Socialist government backed by an absolute majority in parliament. While he had all that support from lawmakers, over the past year he’s been rocked by other challenges including surging living costs, teachers’ protests and controversies related to state-owned airline TAP SA, which the government plans to privatize.

President Marcelo Rebelo de Sousa called a Thursday meeting of the Council of State, an advisory body that must be consulted before dissolving parliament, and he’ll address the country immediately afterward. The president is mainly a figurehead, though he has the authority to appoint the premier and call elections.

When parliament was dissolved at the end of October 2021, an early election was held about three months later.

Socialist Lead

While the end of Costa’s tenure was a shock, it’s not yet certain that his Socialist Party will end up in opposition after a snap election. A survey published by Diario de Noticias on Oct. 29 indicated 28.6% support for the Socialists, 3.7 percentage points ahead of PSD, the center-right party that’s the biggest opposition group in parliament. The far-right Chega party is the third-biggest group in parliament and had 14.6% support in the survey.

Portuguese stocks fell on Tuesday, with the benchmark PSI index dropping 2.5%.

Earlier on Tuesday, the Portuguese Prosecutor-General’s Office said in an emailed statement that Vitor Escaria, the premier’s chief of staff, was among five people detained as part of an ongoing probe related to lithium exploration concessions in the Romano and Barroso mines in northern Portugal, a hydrogen production project in Sines and a data center project, also in Sines.

Prosecutors have also named Infrastructure Minister Joao Galamba as an “arguido,” a status that’s similar to person of interest.

References made by suspects about Prime Minister Costa’s intervention to “unblock” certain procedures will be separately analyzed in an inquiry at the Supreme Court of Justice, the prosecutor said.

Like many other countries, Portugal has been trying to boost renewable energy production and reduce reliance on fossil fuels. Investments in hydrogen and renewable energy projects were among the main items in Portugal’s pandemic recovery plan. The government even had an ambition to export hydrogen made from renewable energy.

While the economy has been recovering since the pandemic, growth is under pressure. The Bank of Portugal last month cut its forecast for the country’s economy for the next three years, citing weaker exports and the impact of interest rate hikes.

Even as the economy cools, the government has still been able to lower the debt ratio, which was the third-highest in the euro area in 2022. The European Commission projected in May that the ratio will drop to the fifth highest this year, below the levels of Spain and France. For 2023, the government aims to post a 0.8% budget surplus.

Given the debt pile, the government is keen to keep borrowing costs in check. Portugal’s 10-year bond yield was little changed at 3.4% on Tuesday. It peaked at 18% in 2012 at the height of the euro region’s debt crisis.

--With assistance from Kevin Whitelaw and Richard Bravo.

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