Brussels, 22/06/2005 (Agence Europe) - As announced, on Wednesday the European Commission examined the report by the Commissioner for Economic and Monetary Affairs, Joaquin Almunia, on the budgetary situation in Portugal and the multi-annual stability program recently forwarded by Lisbon. After the elections in Portugal, the new government wanted to send an amended version of the updated stability program for 2005-2009, in order that the Commission's analysis of this country could take place considerably after that of the other Member States. This document takes account of the audit of the Portuguese public finances further to which the deficit figures for 2005 and 2006, which were already 3% higher in the Commission's economic forecasts, were revised upwards by a considerable margin. Now, the Commission's report on the budgetary situation in Portugal states that a deficit of 6.2% in 2005 cannot be considered either as close to 3% of all as temporary. "Europe and Portugal do not need an increase in deficits in indebtedness, but a vicious circle of economic reforms and structural budgetary adjustments, in order to create a space for expenditure in such a way as to promote competitiveness and growth and allow sustainable jobs to be created", said Mr Almunia in a press release.
With growth forecasts lower than the Commission's latest spring forecasts, Portugal forecasts a budgetary deficit of 6.2% in 2005 (4.9% according to the Commission's figures in April) and 4.8% in 2006 (compare to 4.7%), returning below 3%, to a figure of 2.8%, by 2008. At the same time, the Portuguese debt, which stood at 61.9% in 2004, is set to increase considerably to reach 66.5% in 2005 and 67.5% in 2006, figures which are close to the Commission's forecasts (66.2% and 68.5% respectively). These differences compared to the deficit recorded in previous years can be explained by the re-evaluation of the progression of expenditure and by the fact that less use has been made of exceptional measures, Portugal notes in its updated stability program. This latest version plans structural measures in terms of expenditure, and is tabling on an increase in revenue in the short term. However, the Commission feels that the government could be forced to take additional measures at the end of this period to fulfil its commitments. For 2005, Portugal were supposed to bring in determined corrective measures, to a level of 0.6% of GDP, and begin to bring its debt downwards.
At this stage, the deficit to 2004 still remains established at 2.9%, the discussions between Eurostat and the Portuguese authorities are continuing on the coherence of the data transmitted for the period 2001 to 2004. This means that it was not in reference to a noted deficit that the Commission drew up its report on the article 104§3, but on the basis of a provisional budgetary balance. With a deficit of 6.2% this year (and even though Mr Almunia's spokesperson noted that the provisions of Portugal's stability program were "largely independent" of the deadline which the Commission was to recommend to bring it back under 3%), Lisbon is likely to need over a year to bring itself into line with the rules of the Stability and Growth Pact (SGP). Apart from this element of relative uncertainty, Portugal, which was the first Member State to experience the excessive deficit proceedings, at the end of 2002, will see its public finances placed under increased surveillance once again. The report adopted on Wednesday takes note of the fact that this deficit cannot be considered as being exceptional in nature, because it was not the result of an unusual circumstance out of the control of the Portuguese authorities, nor of a serious economic recession, because with the exception of 2003, Portuguese GDP has continued to rise. The Commission, which observes that the data also exceeds the threshold of 60% authorised by the Pact, takes account of other relevant factors in its analysis, such as the implementation of structural reforms (in the fields of health care, education and public administration), and a plan to improve competitiveness and growth via fiscal incentives for research and development.
The Finance Ministers of the EU, who are to discuss the Portuguese stability program at their next meeting, to be held in Brussels on 11 and 12 July, will not take position on the excessive deficit until "after the summer holidays", Mr Almunia's spokesperson indicated. Under the procedure, in fact, the Economic and Financial Committee (EFC) has to send its opinion to the Commission within two weeks, before the latter can recommend to the Council that it notes the existence of an excessive deficit (104§6) and notifies the authorities of the country in question of its deadline to right the situation (104§7).
Under the rules of the Pact, the deficit must be cancelled out in the year following the year in which it was registered, "except under exceptional circumstances". Given the scale of the deficit anticipated for 2005, the existence of structural reforms, relatively low levels of growth and the Greek precedent, Portugal may thus have over a year to correct its deficit. In the case of Greece, the Commission and the Council felt that it was more reasonable to ask for the deficit to be corrected in a balanced and sustainable way, which the revised Pact also provides incentives for, by giving more of a priority to structural adjustments than to exceptional measures.
Answering press questions on the inefficiency of measures taken by previous Portuguese governments, including that of the current Commission president, José Manuel Barroso, Mr Almunia's spokesperson recalled that Portugal does not have the sole right to use exceptional measures to make up for the gaps in the budget and that this kind of effort was “not illegal”.