EU approves Portugal budget despite concerns

(BRUSSELS) – The European Commission on Friday approved
Portugal’s draft budget for 2016, but warned that more efforts would be
needed by the socialist-led government to avoid a breach of EU rules on

The Lisbon government that took office in November
risked an unprecedented rejection of its behind-schedule budget plans by
the EU’s executive, but several days of tense negotiations in the end
bore fruit.

“Following intense technical and political contacts,
the Commission did not have to request a revised draft budgetary plan
from the Portuguese authorities,” Commission Vice President Valdis
Dombrovskis said at a news briefing.

“Nevertheless, the
government’s plans are at risk of non-compliance with the rules of the
Stability and Growth Pact,” he added, referring to the EU’s strict rules
on government budgets.

In the wake of the eurozone debt crisis,
the commission in 2011 gained new powers of oversight over EU budgets,
with the added ability to outright veto spending plans by eurozone
countries found in serious violation of the rules.

The EU caps
deficit spending at 3.0 percent of GDP and public debt at 60 percent of
output. Most of the eurozone’s 19 members break the limits, but
negotiate a timeline to meet the rules with the commission.

– ‘Long and steep’ –

Socialist Party-led government took office in November and submitted
its budget in January to the EU months behind schedule following
inconclusive elections in October.

The commission made clear that
the initial proposal fell short and the government at the eleventh hour
agreed to new tax hikes and to rescind on a tax cut to the poor to get
over the hurdle.

“It’s a signal of international trust (in a plan)
that still meets the government’s agenda as agreed with parliament”,
the Portuguese authorities said after the EU greenlight.

received a massive international debt bailout in 2011 that saved it from
defaulting, but in return the country had to introduce a string of
austerity measures.

In four years, more than 78,000 public sector
jobs were cut — more than 10 percent of the total — alongside other
steps the creditors said were needed to return the public finances to
balance and put the economy back on track.

The debt in Portugal, which was bailed out by the EU and IMF in 2011, is forecast to hit 130 percent of GDP.

road with our Portuguese friends is still long and steep,” warned
Pierre Moscovici, the EU’s Economics Affairs Commissioner.

Chancellor Angela Merkel, the EU’s influential hardliner on budgets, on
Friday hosted Prime Minister Antonio Costa for talks in Berlin and asked
that Portugal stay on a disciplined path.

“The predecessor of Prime Minister Antonio Costa led Portugal through difficult times,” she said.

is important to keep to this framework,” she said echoing a similar
warning on Thursday from the International Monetary Fund.

Commission Opinion on the 2016 Draft Budgetary 
Plan of Portugal - background guide

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