“That the new government
can ruin the hard-won reform achievements of the previous government
is a joke.”
Portugal’s
budget clears EU hurdle
Commission
gives green light to government’s plan, despite warning on eurozone
non-compliance.
By PAUL AMES 2/5/16,
5:48 PM CET Updated 2/6/16, 6:10 AM CET
LISBON —
Portugal’s Socialist government avoided an embarrassing rejection
of its 2016 budget by the European Commission Friday after its
additional deficit-reducing measures eased some of Brussels’
concerns.
“The Commission
did not have to request a revised budgetary plan,” said Valdis
Dombrovskis, Commission vice-president for the euro.
However, Dombrovskis
warned the budget plan remains “at risk of non-compliance” with
the eurozone’s stability and growth pact, asked the government in
Lisbon to take “additional measures” and told them they will face
an additional review by the Commission in the spring.
“We need to remain
very attentive,” Dombrovskis told a news conference in Brussels.
“We cannot be certain that the Portuguese budget plan offers enough
reassurance to correct the excessive deficit in 2016, and government
debt is still very high at nearly 130 percent of GDP.”
Despite the warning,
the decision is a relief for Prime Minister António Costa, who is
struggling to balance eurozone deficit reduction commitments with
pledges to roll back austerity measures introduced by the
center-right government he ousted after elections in October.
The
Portuguese budget plan aimed to reduce the deficit to 2.6 percent of
gross domestic product this year.
The Commission last
week warned the draft 2016 budget — which includes increases in
pensions and public sector salaries — risks “particularly serious
non-compliance” with eurozone deficit-reduction obligations. It
also contested the government’s numbers, suggesting they are based
on over-optimistic growth forecasts.
That had raised
concerns Portugal could become the first eurozone government to have
its budget rejected by the Commission under “two-pack” rules
introduced in 2013 to ensure coordination of budgetary policy among
countries in the currency bloc.
During intense
negotiations over the past few days, Portugal agreed to further
deficit-cutting measures including through additional taxes on bank
transactions, fuel and tobacco.
Pierre Moscovici,
the EU economic and financial affairs commissioner, said the
concessions from Lisbon had led to “additional measures worth up to
€845 million, which will help safeguard the soundness of Portugal’s
public finances.”
That should send a
reassuring message to investors, Moscovici told the news conference
in Brussels. “At the same time, the risk of non-compliance remains
and we will continue to monitor developments in the coming months,”
he added.
Portugal is not off
the hook, however. Costa still has to convince markets that his
government remains committed to sound finances and reforms to boost
competitiveness despite his pledge to turn the page on austerity in
line with agreements he struck with left-wing parties in return for
parliamentary support that keeps his government afloat.
“We have presented
a responsible budget, that will create conditions for employment,
growth and social cohesion, with a more sustainable reduction of our
deficit,” Costa told a news conference with Chancellor Angela
Merkel in Berlin shortly before the Commission decision.
That
the new government can ruin the hard-won reform achievements of the
previous government is a joke.
The Portuguese
budget plan aimed to reduce the deficit to 2.6 percent of gross
domestic product this year, but that was based on the economy
expanding by a healthy 2.1 percent. Forecasts from the Commission and
International Monetary Fund this week show growth at just 1.6
percent.
Even with the rosy
growth prediction, the budget seeks to reduce the structural deficit
— which leaves out cyclical measures — by up to just 0.2 percent,
rather than the 0.6 percent eurozone target.
Merkel was
noncommittal in her comments on the Portuguese budget, but members of
her center-right Christian Democratic Union party were quick to
denounce what they see as the Commission going soft on rules designed
to underpin the stability of the euro and prevent repeats of the
crisis that rocked the currency after 2009.
“That the new
government can ruin the hard-won reform achievements of the previous
government is a joke,” said Herbert Reul, chairman of the CDU group
in the European Parliament. “The Commission must restore its
credibility as a guardian of the treaties. Otherwise we risk falling
back into the darkest time of the euro crisis.”
Hans von der
Burchard contributed to this article.
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