Portugal first to the post in ratifying EU budget pact
Portugal becomes on Friday the first EU country to ratify a pact to make budget discipline the main rampart against debt crises, if its parliament passes the measures as expected.
In a vote late morning, the parliament is also expected to approve the European Stability Mechanism, a firewall fund and the second new line of defence against debt contagion.
Portugal is one of three eurozone countries to be rescued by the EU and the International Monetary Fund as alarm over the state of public finances pushed up borrowing rates on international bond markets to unsustainable levels first for Greece and then Ireland.
Although Portugal is set to be the first country to ratify the new rules, it is also one of the 17 eurozone countries having the greatest difficulty in meeting the targets.
Portugal’s ratio of debt to gross domestic product (GDP) is expected to hit 115 percent at the end of the year from around 110 percent curently and then gradually decline. Debt was 93.3 percent of GDP in 2010
Portuguese Prime Minister Pedro Passos Coelho, arguing strongly in favour of the pact in a speech on Thursday to parliament, where he has a comfortable centre-right majority, said that the budget pact “represents our refusal to repeat the errors of the past.”
The Socialist party, the main opposition force, has said that it will vote in favour so as not to undermine the credibility of the country.
Socialist leader Antonio Jose Seguro said that “it is in the name of the option for Europe chosen by Portugal that we shall vote in favour.”
However, Portuguese socialists, in common with many socialist movements elsewhere in the European Union, hold that the pact does not give enough attention to growth and job creation.
The pact was signed in Brussels on March 2 by 25 of the European Union countries after tortuous negotiations, but it was not signed by Britain and the Czech Republic.
Ireland has signed the pact but is putting it for approval by referendum.
In Germany, the biggest eurozone economy, the opposition Social Democrats want the pact to include more measures to encourage growth.
The country may ratify the pact only at the end of the year even although the government has said it would like to see approval at the end of May.
In France ratification of the pact depends on the outcome of upcoming presidential elections.
French Socialist presidential frontrunner Francois Hollande has said he would like to renegotiate the pact to include more steps to boost economic growth.
The pact, and its greatly increased rules on control of public finances, will begin to be applied once it has been ratified by 12 countries.
The new rules mean that almost automatic sanctions will be applied against countries which allow their annual budget deficits to breach agreed limits.
It lays down a maximum structural deficit of 0.5 percent of gross domestic product, a maximum public deficit (including cyclical factors) of 3.0 percent of output, and a ceiling for debt of 60 percent of output.
The Portuguese government is cutting spending and raising taxes to meet the terms of the 78 billion-euro ($104 billion) aid plan it received from the EU and the International Monetary Fund.
The measures have allowed the government to slash Portugal’s budget deficit to 4.2 percent of output last year, less than half of the 9.8 percent reproted for 2010.
But the austerity has plunged the country into a deep recession. The Portuguese ecomy is expected to contract by over 3.0 percent this year while the jobless rate will surpass 14 percent.