Strasbourg, 24/09/2002 (Agence Europe) - On the occasion of the adoption of the report that is the first stage in the excessive deficits procedure (EDP) launched against Portugal, the European Commission held a broader debate on Tuesday from which it emerges that the slowdown in growth could force Europe to allow for a two-year delay at most of the date of 2004 for which it was planned that the situation of close to a budgetary balance should be reached.
In a document presented to their colleagues, Prodi and Solbes, Commission President and European Commissioner responsible for economic and financial issues, reaffirm their commitment to the rules of the Stability and Growth Pact and place emphasis on maintaining the commitment in favour of a rhythm of a strict budgetary adjustment. Regarding this, they recommend, in the current economic slowdown context, an annual rate of structural adjustment of 0.5% of GDP. This rate would be higher in countries affected by a large deficit or a heady debt. Messrs. Prodi and Solbes, whose note was the subject of a consensus in College, also consider that in case of a revival in growth, a more ambitious rate of structural adjustment would be necessary. As many provisions that would imply that the goal of reaching a situation close to a balance would be attained in 2006 at the latest, they conclude. Of course, the countries already having attained the goal in the medium term should have to maintain their position.
In connection with the Portuguese budget deficit, the main conclusions of the report aodpted by the Commission are as follows: The government deficit in Portugal in 2001 was clearly above the 3% of GDP reference value. It was significantly higher than notified last February by the national authorities and higher also than estimated by the Commission services last spring. 1)The extent of the revision of the deficit data revealed serious deficiencies in the production of public finance data in Portugal. 2) The upward revision was due partly to changes in statistical classification and recording, but partly also to genuine budgetary slippage; 3) While general economic conditions had weakened in Portugal as elsewhere in 2001, the overrun in budgetary expenditure and the shortfalls in revenue can only partially be explained by cyclical factors; 4) The deficit in 2001 did not result from an unusual event outside the control of Portugal, nor did it result from a severe economic downturn. The size of the deficit was about equal to government investment expenditure; 5) The new government that came into office last April adopted a rectifying budget, effective as from early June. The new target for the deficit in 2002 is 2.8% of GDP. Budgetary execution up to August shows that, while expenditure appears to have been brought under firmer control, tax revenues are being adversely affected by weak economic activity. It is as yet uncertain whether the deficit in 2002 will actually stay below 3% of GDP.
The Economic and Fiancial committee will give its recommendation on the content of the report in two weeks. The Commission will address and Opinion to the Council, which will subsequently decied, on a recommendation from the Comission, whether an excessive deficit exists. If this were the case, at the same time, the Council shall, on the basis of a recommendation from the Commission, make recommendations to Portugal to rectify the situation. However, economic and finance ministers have informally agreed during the informal Ecofin meeting in Copenhagen on 6 September to reach a Council decision on this point in the Ecofin meeting of 5 November.