A Bank for Reform

The recent news about the new headquarters of the Bank of Portugal continues to cause perplexity among citizens.

On the one hand, there is the fact that the operation was decided just a few weeks before the end of the mandate, as if it were an emergency situation.

But the main reason for surprise is that citizens will learn that the Bank still plans to maintain or even increase the large number of employees it employs, to the point of being willing to spend two hundred million euros to accommodate them, given that this entity, upon joining the European System of Central Banks, when Portugal entered the Eurogroup, ceded the exercise of most of its powers to the European Central Bank.

It could be argued that the average citizen has no idea how many employees a bank requires for its operations. It's easy to know how many employees a local grocery store needs, but it's difficult to accurately estimate the number of brains required to study economics and finance to support government decisions, or to supervise the activities of commercial banks operating in the national market. The latter activity requires many minds, considering that those employed by the Bank of Portugal in the years prior to 2014 failed to prevent many people from being scalded by the collapse of BES. Supervision is essential to protect bank customers, since the state authorizes them to remain open to accept deposits.

Even assuming the average citizen is ignorant of these matters, it's natural for them to find it logical that, back in 2002, with the adoption of the Euro, the Bank of Portugal began to demobilize its staff, perhaps gently to avoid a stir, but taking advantage of employee retirements, simply not hiring new ones. After all, it contributed €205 million to the European Central Bank's capital, a small amount but willingly, so one would expect some effort to recover this money, which ultimately belongs to the taxpayers.

Fortunately, the aging institution has at least one virtue: sufficient transparency to easily determine how many people it employs. Through its annual financial reports, we know how much it spends on personnel and how many employees it has. Starting our search in 1995, when it was still a central bank like any other country, a few years before the change from the Escudo to the Euro, and even the transition period, we find a staff of 1,771 people. Continuing our analysis, we find that, starting in 2001, a slow but persistent reduction in staff began, as expected, until 2010, when it reached a 10% decrease. However, from the second decade onward, the staff increased again, reaching in 2024 practically the same number as before the Euro's launch.

As expected, expenditure underwent a similar trend. At constant prices, personnel expenses are very similar to those of the last years of the last century, so we can be certain that the recovery of the capital invested in the ECB will still have to wait.

Did it have to be this way, or could it have been different? How did other European central banks that underwent the same transformation proceed?

We can certainly find central banks with similar behavior. Rumor has it that other countries also have political parties that need to be spearheaded, and lobbies for all tastes.

But there is at least one glimmer of common sense: the Deutsche Bundesbank, in its annual report, when reporting on employee numbers, always makes a point of highlighting the "reduction since December 31, 2001." We can thus see that, by 2024, it had already reduced its workforce by 31.1%.

If at least one similar bank carried out a gradual but significant reduction in its staff following integration into the Eurozone, it seems that the common citizen had a point after all. And, since we now have a minister dedicated to state reform, we see that he has plenty of work to do.