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Moscovici issues severe warning about Portugal’s proposed 2018 budget

moscoviciUnlike the 2017 budget proposal for Portugal, the European Commission has not returned this year’s submission for 2018 or even suggested that there should be a plan B.

Brussels has accepted the 2018 budget proposal, with many reservations but has put Portugal in the group of member countries whose financial plans do not stack up, warning that Portugal’s economy is one of the most unbalanced in the euro zone.

The 2018 draft budget presented by PM António Costa and his Finance Minister, Mário Centeno, presents “risks of non-compliance and threatens the Stability Pact,” according to Pierre Moscovici, Commissioner for Economic Affairs.

The budget proposals can result in a “significant deviation” from the goals required by the pact, with the commissioner conceding that “things are going in the right direction,” even though Portugal is “clearly at risk of default.”

Moscovici called on Portugal’s government, “to take the necessary measures within the framework of the national budgetary procedure to ensure compliance with the rules of the pact.”

The Commission has asked the government to explain better and in detail how it will manage to cut back on spending. It must say and prove how it will prevent an increase in the public payroll which Brussels reckons will add around €400 million to the figures. Complaining of insufficient detail in certain areas, the commentary from Brussels is hardly complimentary, saying many proposed measures are “not convincing.”

António Costa is confident, believing that Brussels will, “month after month” gain greater “tranquility” with his budget, adding that the final proposal, after parliamentary discussions, “will surely bring an improvement to the document.”

Portugal is not alone, as Belgium, Italy, Austria and Slovenia also “present a risk of non-compliance with the rules of the stability pact.” Brussels warned that these five countries, “could lead to a significant deviation from the adjustment trajectories with a view to their medium-term objectives.”

In the case of Belgium and Italy, “debt default is foreseen,” with Portugal at least avoiding this prediction

Marianne Thyssen, the Commissioner for Employment, was less comfortable with Portugal’s budget and past performance, saying that the country currently fails in half of the 14 main social indicators.

Thyssen warned that “inequalities remain high,” adding that, “We see that in 2016 the income of the richest 20% of the population was 5.9 times higher than the income of the poorest 20%, when the average in Europe is five times, so we have to be vigilant.”

It is not only in social imbalances where Portugal goes wrong. In school drop-out rates and training, “the situation is critical, the unemployment rate is too high, the evolution of wages per worker is too weak, the impact of social support on poverty reduction is poor,” according to Thyssen’s report.

However, when the subject is the national minimum wage, the commissioner has another concern, “A further rise in the minimum wage may hamper the employment of people with low skills.”

But it is not only public accounts that raise questions. Portugal also appears as one of the countries with relevant “macroeconomic imbalances”. Brussels proposes that “twelve countries be covered by an in-depth analysis in 2018,” namely Bulgaria, Croatia, Cyprus, France, Germany, Ireland, Italy, Netherlands, Portugal, Slovenia, Spain and Sweden.

The Commission fears an excessive dependence of foreign investment and the excessive indebtedness of families and companies, in a huge public debt (now at 130% of GDP) and in too rapid an increase in house prices.

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