EU Warns Portugal to Ready Extra Budget Cuts

[Cees Binkhorst]

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Ter voorkoming van een 2e Griekenland drama.

Groet / Cees

April 14, 2010
EU Warns Portugal to Ready Extra Budget Cuts
http://www.nytimes.com/aponline/2010/04/14/business/AP-EU-EU-Portugal-Budget.html
By THE ASSOCIATED PRESS

Filed at 9:19 a.m. ET

BRUSSELS (AP) -- Portugal must be ready to make more cutbacks if can't
achieve its deficit-reduction target, the European Union's executive
commission warned Wednesday as it struggles to curb soaring debt levels
across the region.

Portugal's austerity efforts are closely watched by financial markets
looking to see whether Greece's borrowing problems could spread to
another member of Europe's currency union. Eurozone nations have pledged
Greece some euro30 billion in loans if it can't borrow from markets.

A European Commission report said that Portugal's target to reduce its
deficit to 8.3 percent this year could run into trouble if its economy
does not recover strongly and it can't raise the money it expects from
non-tax revenue and cutbacks to capital spending.

''The outlined revenue performance and expenditure containment may be
difficult to attain on the basis of the announced measures already in
2010,'' it said.

EU Economy Commissioner Olli Rehn said ''additional measures may be
needed this year'' if the economy performs worse than the government is
forecasting.

''This relates especially to the fact that the 2009 deficit outcome is
worse than anticipated,'' he told reporters.

Portugal's finance minister Fernando Teixeira dos Santos said the
country was prepared to do more if necessary.

''But that need isn't there at the moment,'' he told reporters in Lisbon.

Portugal's deficit widened sharply from 2.8 percent in 2008 to 9.3
percent last year after the government spent heavily to stimulate the
economy, while unemployment and welfare payments soared due to the
economic downturn. It aims to bring the deficit below 3 percent by 2013.

The report says Portugal has been ''in a situation of sluggish economic
growth for almost a decade'' and is suffering from low productivity and
potential growth.

Portugal is now assuming that it can raise more taxes from higher
domestic demand after it increases exports to major trading partners,
the EU says.

Rehn said the government had ''somewhat optimistic'' forecasts for
economic growth and defended the EU's harsh words for Portugal, saying
regulators ''had no other option than to make a correct and honest
assessment.''

''Otherwise we would not be credible and the situation would be even
worse,'' he said.

''It is important that people write an accurate picture of the
Portuguese economy and I'm sure this will help a serious and conclusive
policy debate in Portugal in order to address the challenge of fiscal
consolidation,'' he said.

Portugal's credit rating was downgraded from AA to AA- by Fitch Ratings
last month. Ratings are closely watched by bond investors who are
looking to see if Greece's troubles are spreading to other eurozone nations.

Greece's ballooning borrowings has forced it to offer high rates to
attract investors who believe the country could be unable to make debt
repayments.

The EU report also says Portugal is not attracting enough foreign
investment and that it can no longer compete globally on wage levels in
labor-intensive industries -- such as making clothes and leather goods
-- where it used to be strong. Much of this type of work has shifted to
Asia.

It calls for Portugal to step up ''structural reforms'' to upgrade
education and training and open up competition for services, energy and
telecoms companies.

Portugal has one of the highest rates of people leaving high school
early, making many workers unable to apply for skilled jobs.

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