Portuguese Prime Minister Durao Barroso and Alberto Joao Jardim, leader of the Madeiran faction in Parliament, whose votes are needed by the Government to maintain its majority, made various agreements, which are being scrupulously adhered to, says Corporate and Treasury's Tim Wilkie.

Early steps to implement the agreements have been mostly in the Portuguese interest, rather than favouring Madeira, particularly an increase in VAT and the imposition of Portuguese corporation tax on 80% of the profits of banks located in the Madeira International Business Centre (MIBC). This led predictably (although not predicted in Lisbon) to the immediate departure of the said banks for other offshore locations. It's curious how politicians over-estimate their power over the laws of economics!

Improvements in Madeiran autonomy, which represent the quid pro quo for the MIBC, are now being discussed in Lisbon. The most important of these will be the transfer of the Madeiran tax office to Madeira, which in the eyes of Lisbon will increase surveillance of tax collection, and in the eyes of the MIBC will allow favourable tax decisions to be taken locally. Other transfers of some of the bureaucratic apparatus in Lisbon will take place, including judicial and regulatory functions. 1,200 jobs have been created in Madeira to take on the new roles, which are to be paid for through sensible economies, says Corporate and Treasury.

Madeira is also hoping to be able to achieve its own independent debt rating from Moody's, which it estimates will allow it to improve considerably its current debt profile and reduce servicing costs.