PUBLIC FINANCES

Brussels urges Portugal to present alternative budget measures swiftly

Commission calls meeting fiscal targets a “precondition” for receipt of next bailout tranche

The European Commission on Monday called on the Portuguese government to quickly present the alternative measures it plans to introduce to meet its deficit-reduction targets after the Constitutional Court on Friday threw out some aspects of its austerity program.

EC spokesman for economic and monetary affairs, Simon O’Connor, said it was up to the Portuguese government to decide on those measures and present them swiftly, but insisted they should fulfill the same fiscal objectives agreed with the European Union, the European Central Bank and the IMF as part of the terms of its 78-billion-euro bailout.

O’Connor said fulfillment of the terms was a “precondition” for the disbursement of a two-billion-euro tranche of the bailout in May, as well as for extending the timeframe for the return of the loan.

Portuguese Prime Minister Pedro Passos Coelho on Sunday said the government ruled out further tax increases to fill the gap of some 1.3 billion euros in its budget plans for this year left by the Constitutional Court’s decision to rule that cuts in holiday pay for public-sector workers and pensioners and reductions in unemployment and sick leave benefits were illegal. He said the government instead plans to further shave outlays on education, health and social security.

Portugal is committed to reducing its public deficit from 6.4 percent of GDP last year to 5.5 percent this year, then to 4.0 percent in 2014 before bringing its back within the EU ceiling of three percent in 2015.

In a statement issued on Sunday, the Commission said: “Continued and determined implementation of the program offers the best way to restore sustainable economic growth and to improve employment opportunities in Portugal. At the same time, it is a precondition for a decision on the lengthening of the maturities of the financial assistance to Portugal, which would facilitate Portugal's return to the financial markets and the attainment of the program's objectives.”

“Any departure from the program's objectives, or their re-negotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens, namely the growing investor confidence in Portugal, and prolong the difficulties from the adjustment,” the statement added.

More spending cuts could further deepen the recession in Portugal. The government last month more than doubled its prediction for the contraction in GDP for this year to 2.3 percent, in part due to weaker exports as a result of the slowdown in Europe. Unemployment is expected to rise to 19 percent this year.

EU economy and finance ministers are due to discuss developments in Portugal at an informal meeting to be held in Dublin on Friday.

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