Why the New Euro-Area Chief Enjoys Emmanuel Macron's Backing

(Bloomberg) -- Top of the in-tray for the new head of the group of euro-area finance ministers, Mario Centeno of Portugal, is steering reforms in the currency union as the region’s economic recovery takes hold.

It’s a task that ensures he’ll have his work cut out for him, as the bloc strives to complete its banking union and narrow the economic gap across the region. Yet the nature of the work also means he enjoys the backing of France’s Emmanuel Macron, whose own bid to reform the bloc is a keystone of his presidency.

“We have the ability to make the euro area grow a little bit faster and for a longer period of time if we implement the reforms needed,” Centeno, 50, said in an interview with Bloomberg Television in Brussels right after his election. “The time window that we have following the electoral cycle that several countries had recently, the political cycle that is just beginning, we need to take advantage of that and implement ambitious reforms.”

The election of a minister from a country that depended on emergency bailout loans to stay afloat less than four years ago underscores the extent of the euro area’s recovery. As finance minister since November 2015, Centeno has seen tourism and exports boost his country’s economy and help manage the budget deficit, which last year was the narrowest as a percentage of gross domestic product in four decades of Portuguese democracy.

Centeno takes over the Eurogroup at a time when the currency bloc has moved on from its existential turmoil and is taking steps to strengthen its economy and proceed with closer integration among its 19 member states. Some nations are pushing for a more generous euro-area budget to spur growth and investment, while Germany has been adamant about avoiding any pooling of risk that could put its own taxpayers on the hook for others’ financial troubles.

Lobbying Campaign

Centeno’s bid to helm the Eurogroup was aided by French Finance Minister Bruno Le Maire, according to a French official. Paris views Centeno as a sympathetic candidate who could help bolster Macron’s effort to reform the euro area, said the official, who asked not to be named because the voting process was private.

Europe “needs to be an economic and monetary power,” Macron said in a speech in September, laying out a wide-ranging vision for a closer, more powerful European Union in the face of a more globalized world. Paris sees a narrow window of opportunity to push through reforms and are pleased with the outcome of the election, according to the official.

“The proposals that President Macron has put forward in his latest speech, they are very important and of course we need to take them on board as much as the proposals that” European Commission President Jean-Claude Juncker and European Council President Donald Tusk put forward, Centeno said. “We have lots of ideas -- that’s the good thing about Europe these days.”

Harvard Ph.D.

Centeno, a Socialist member of parliament, holds an economics Ph.D. from Harvard University, is a former deputy head of economic research at the Bank of Portugal and was a member of the European Commission’s Economic Policy Committee between 2004 and 2013.

His government raised the minimum wage and reduced the working week for state workers as it aimed to remove some measures introduced during the bailout program provided by the EU and the International Monetary Fund. Centeno has also reversed state salary cuts faster than the previous administration proposed, while raising indirect taxes.

While Portugal exited its three-year international aid program in 2014, the government is still dealing with legacy issues including bad loans at banks. Some of the key institutions of the euro area aren’t complete, “starting with the banking union,” Centeno said on Monday as he walked into the Eurogroup meeting in Brussels.

Portugal’s debt burden also remains high. The European Commission forecasts government debt will drop to 124.1 percent of gross domestic product in 2018 from 126.4 percent in 2017. The debt ratio increased last year as Portugal raised funds for the 2.5 billion-euro capital injection in state-owned bank Caixa Geral de Depositos SA.

Why the New Euro-Area Chief Enjoys Emmanuel Macron's Backing

The 2018 budget projects Portugal’s economic growth will now slow to 2.2 percent next year from 2.6 percent in 2017 as exports decelerate.

“We have to continue to seek convergence,” Centeno said in the interview. “All member states need to grow at faster rates.”

Portuguese President Marcelo Rebelo de Sousa has already been alerting Centeno about not losing sight of challenges back home as he’s set to start paying more attention to gatherings in Brussels.

“He has to look at Europe, and in Europe naturally pay attention to what is fundamental for Europe, but he shouldn’t forget that he only got there because he’s finance minister of Portugal, he didn’t fall from the sky,” Rebelo de Sousa said on Saturday in comments broadcast by RTP. “It’s fundamental that we don’t steer off course on financial matters.”

©2017 Bloomberg L.P.