LISBON, Portugal – In a tug of war over budgets, the European Commission approved Portugal’s so-called anti-austerity spending plan on Friday, but only after extracting a promise for almost $1 billion in additional cost cuts.
The approval was conditional, however, with EU Commissioner Pierre Moscovici saying the new Portuguese “government’s plans are at risk of non-compliance with” EU rules to keep deficits down and would need strict monitoring.
Left-wing and centre-left governments — particularly in Greece, Spain, Italy and France — have long complained that the EU’s executive Commission required them to cut public spending they argued was needed to foster economic growth.
The EU Commission has insisted that budgetary rigour is needed to keep economies healthy and make sure nations are not burdened by excessive debt, which helped cause financial crises in several countries, notably Greece.
The issue flared up again after the election last November of a new Socialist government in Portugal that presented a so-called anti-austerity budget plan to the EU Commission last month.
Intense negotiations in recent days just managed to avoid an ideological faceoff over the issue.
Portuguese Finance Minister Mario Centeno said the deficit would drop to 2.2 per cent of GDP this year, within the EU’s limit of 3 per cent.
But the Commission claimed that figure was based on excessively optimistic growth forecasts, and estimated the deficit would be 3.4 per cent.
Moscovici insisted there was no ideological fight between the Commission and the Portuguese government, only sound economics.
“Whatever the government, it must apply the rules,” Moscovici told reports after an extraordinary meeting of the Commission on Friday.
Portugal’s minority Socialist government holds power due to the parliamentary support of the Communist Party and radical Left Bloc, which won’t accept any more austerity.
Portuguese Prime Minister Antonio Costa, who is under pressure to deliver on his election promises, said he was “especially pleased” with the Commission’s decision. “We have shown it is possible to turn the page (on austerity) and still remain in the euro,” Costa said.
The 2016 spending plan predicts growth of 1.8 per cent, with government debt — currently one of the highest in Europe at around 130 per cent — is seen falling to 128 per cent, he said. Unemployment is forecast to stay above 11 per cent.
Additional revenue will come from higher taxes on banks and vehicle and gas sales.
Casert reported from Amsterdam.
Follow Raf Casert on Twitter at http://www.twitter.com/rcasert