Police raids, bundles of cash, and a resignation: How Portugal’s political success story fell apart

Bundles of cash found in an office in the Portuguese prime minister's official residence have led to the downfall of one of the European left’s success stories after the country’s Socialist leader resigned over an investigation into alleged corruption.

Portugal is heading towards a snap election next year after Antonio Costa shocked the country by resigning over the probe.

More than €75,000 (£66,000) in cash was found by police in the office of Costa’s chief of staff Vitor Escaria. Escaria’s lawyer said the cash wasn’t illegal.

In a series of raids, police arrested five members of the prime minister’s inner circle in an investigation over potential irregularities in contracts for lithium mines and green-hydrogen projects linked to the government.

Costa stunned the country by resigning within hours of the raids on Tuesday, while declaring that he was not guilty of any wrongdoing.

“The duties of prime minister are not compatible with any suspicion of integrity,” he told a press conference. “In these circumstances, I have presented my resignation to the president of the republic.”

In a televised speech on Saturday, he added: “The seizure of envelopes with money in the office of a person I chose hurts me... embarrasses me before the Portuguese and I have a duty to apologise.”

It would appear to bring to an end the career of a man who was seen as one of the rare success stories for the left in Europe in recent years, presiding over one of the best-performing economies in the continent, with growth this year expected to reach 2 per cent.

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Famed for his ability to strike unexpected deals, Costa conjured up a surprise coalition deal with the Communist Party, traditional enemies of the Socialists, and went on to win his third term in office with an absolute majority at a snap election last year.

After the prime minister’s resignation, Portugal will go to the polls on 10 March, for the second time in as many years. President Marcelo Rebelo de Sousa said he would disband parliament after a vote on the 2024 budget bill which is due on 29 November.

Analysts said the corruption investigation which brought down the Portuguese leader was only the latest graft case which prompted rising criticism of the Socialist Party.

Advisers of Costa, including Diogo Lacerda, a friend from their law school days, were implicated in the graft investigation. Police arrested Costa’s chief of staff and a close adviser along with the Socialist adviser of Sines, a port city south of Lisbon. Two executives from a data company were also detained.

Prosecutors said the infrastructure minister, Joao Galamba, and the head of the environment agency were named as suspects, and that the prime minister was also under investigation.

“There have been problems with [various ministers] in the past. But Costa did not apply the same strict code of conduct to them as he did to himself,” Andre Freire, a political expert at the University Institute of Lisbon, told The Independent.

“What is new here is that some of the people involved are people from the inner circle of the prime minister. That is where there is a problem. It was discovered that the chief of staff allegedly had €75,000 in cash hidden in books and bottles of wine in his office. It is surreal! That is why Costa had to go.”

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The corruption investigation is looking into government awards of contracts for two big lithium-mining projects. It comes as Portugal vies to win a place for itself in Europe’s booming battery manufacturing production chain. Portugal claims to have the biggest deposits of lithium ore, a mineral that most often comes from Australia, Chile and China.

In May, the country’s environmental regulator granted approval for a huge open mine in the region of Barroso in northern Portugal. Another mine in the region of Montalegre, near the Spanish border, was approved in September. Both projects have faced protests from local people, who claimed they would cause environmental damage to the region.

The Portugal public prosecutor’s investigation dates back to 2019 when a whistleblower alleged there had been favouritism towards Portuguese firms in awarding a contract for a green hydrogen energy plant and a data centre in Sines.

All those implicated in the probe are being investigated for alleged “active and passive corruption of office holders” and “political influence-peddling”.

Even though he insists he is innocent, Costa said he will not stand for office whatever the outcome of the investigation.

In April, Rebelo de Sousa warned the government to clean up its act after a separate investigation into alleged corruption in the state-owned TAP airline.

The scandal, which was christened “TAP-gate”, led to more than a dozen ministers and secretaries of state to quit their posts.

The controversy began almost a year after revelations that a TAP director was given a £435,000 severance package. After leaving TAP, Alexandra Reis was appointed head of the state-run air traffic control company NAV. Then in December last year she was appointed junior treasury minister. The move prompted calls for an investigation and even Costa’s resignation.

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A total of 10 senior government officials have left their jobs since Costa won power last year.

Dr Freire said internationally Costa was viewed as a success story, but that domestically the make-up of Portuguese politics could change. “It may be that after next year’s election, we end up with a coalition government which has to involve the far-right Chega party,” he said.

The scandal which has brought down Costa casts a shadow over the legacy of a politician whose country emerged from the debt crisis and a €78bn (£70bn) bailout from the International Monetary Fund in 2011 to become a magnet for investors and tourists alike.

Costa led the country through a strong period of strong economic growth during which his governments have cut the budget deficit and reduced the debt burden, winning plaudits across Europe for fiscal policies.

On Saturday, while saying he respected the corruption investigation, Costa defended his government’s right to make strategic investments in projects aimed at spurring development. He said his administration had always acted “in strict compliance with the law” while “promoting regional development, removing bureaucracy and boosting transparency”.

“Future Portuguese governments must be guaranteed the freedom of political action to pursue legitimate strategies,” he added.

The Socialist prime minister has also won praise for his government’s progressive social welfare and health policies. But he has been criticised for failing to do enough to tackle the cost of living crisis.

Housing prices, which were fuelled by incentives to lure wealthy foreigners such as the golden visa, have soared since 2015 while more than 50 per cent of workers earned less than €1,000 per month last year, according to government data.

Miguel Morgado, a political professor at Lisbon’s Catholic University, a television pundit and fierce critic of Costa, said: “Costa had very strong things running for him until the pandemic. The previous government left the country in a state. [He] was able to take advantage of the lenient policy of the European Central Bank, low prices for oil and things which Portugal has to import. He restored Portugal’s credibility in the financial markets.”

Costa has agreed to remain at his post as the country’s caretaker prime minister until the next elections are held, but he is clear: “This is a phase of my life that comes to an end.”