Brussels, 07/05/2002 (Agence Europe) - The question of the Portuguese public deficit for 2002 was one of the key issues covered by the Eurogroup, which met on Monday evening under the chairmanship of Rodrigo Rato, and during which some Member States, including German Minister Hans Eichel, raised questions about the reliability of figures provided by Lisbon. Furthermore, ministers confirmed yet again that Europe should achieve its growth potential by the end of the year, and that there are still inflation-related risks (inflation should, however, be around 2% in 2002) linked to the evolution of oil prices and to salary negotiations under way in some countries, including Germany, Mr Rato told the press. The Eurogroup also discussed improvements made to the coordination of economic policies, on the basis of a discussion paper presented by Commissioner Pedro Solbes.
The new Portuguese Finance Minister, Manuela Ferreira Leite, sought to reassure his partners and the European Commission, explaining that the correcting budget adopted on Sunday by the Council of Ministers of his country comprised measures intended to limit the public deficit to 2.8% of GDP this year. Mr Solbes declared it was not simply necessary to focus on the Portuguese public deficit estimates, but that Portugal should also ensure a budgetary position close to balance by 2004. Earlier in the day, the spokesperson for Mr Solbes had recalled that Portugal, which had escaped a warning from the Ecofin Council in February, had pledged it would reduce the public deficit to 1.8% of GDP for 2002. The Portuguese government foresees budgetary cuts of one billion euro (reduction in public investment, freeze on calls for tenders, suppression of tax relief on housing, suppression of 30 public institutes and the merger of 4 others, a reduction in the number of civil services and a slight increase in the external debt), and new receipts of EUR 400 million, mainly thanks to the 17-19% rise in VAT. Without new measures, the budgetary deficit would this year be 4.5% of GDP, the Portuguese minister pointed out in his country. At the end of the meeting, Ferreira Leite told the press that there were "two ways of calculating public spending", and thus the deficit, but the one chosen today by national accounts provided for 2.8%.
Wage negotiations: in compliance with the Broad Economic Policy Guidelines (BEPGs), Mr. Solbes recalled that "wage moderation has had an essential role to play in the economy for some years now, and this has had positive effects on the increase in activity and level of employment". He considered that they should "continue to preserve this wage moderation , while keeping an eye on inflation and productivity". Mr. Rato said he fully agreed with Mr. Solbes, recalling that over the past five years, German wages had evolved below the European average. "One has to provide for a sufficient margin for productivity and job-creation. As we are living through a period of low inflation, it is totally attainable (this moderation) in the context of the current wage negotiations", Rato added confidently.
Co-ordination of economic policies" Solbes set out his thoughts on co-ordination of economic policies, before the Commission presents formal proposals on the subject in the context of the European Convention (see EUROPE of 15 and 16 April;, p.12). Mr. Solbes recalled the main elements of the text: improving the quality of statistics;: the option of making a systematic analysis of the policy mix in the eurozone and an analysis of the impact of an ageing population on public finances. The Commission says it aims to get Member States to adopt common standards for the implementation of economic policy without making the current mechanisms any more rigid, pointed out Solbes.
The Irish finance minister Charlie McCreevy slammed the Commission's strategy, saying that Member States were reluctant to give details in advance of their national budgets. He said that the Commission seemed to want to push Europeans into integration faster than they would have liked and this presented political problems. The German finance minister Hans Eichel also criticised the reflection document.
Economic situation. Alongside Portugal's planned budget, Eurogroup also discussed changes in the economic situation in Europe and the rest of the world, particularly in light of the recent G7 and IMF meeting, and Solbes outlined the Commission's recommendations on BEPG for 2002. On the fringes of the Eurogroup meeting the Troika of economics and finance ministers from Spain, Denmark and Greece discussed European economic developments with the social partners and the Commission. They also discussed labour market reform.