Portugal may not meet 2011 deficit target: EU’s Rehn

EU Economic Commissioner Olli Rehn said Tuesday that Portugal may not meet the deficit target demanded by creditors for 2011 but remained optimistic about next year’s budget programme.

Rehn spoke to Portuguese radio a day after the centre-right government submitted its 2012 budget to parliament, with Finance Minister Vitor Gaspar outlining tougher austerity measures than those agreed as part of the bailout deal in a bid to get the country’s finances back on track.

“The latest information suggests that there are risks to attaining the 2011 deficit target as specified in the programme,” Rehn told Antena 1.

“This is unfortunate, and underscores failures in budget planning and execution.”

Portugal in May received a 78-billion-euro bailout from the European Union and International Monetary Fund, conditioned on a tough austerity programme to be executed over three years.

The country needs to reduce its public deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent by the end of 2011. It still stood at 8.3 percent earlier this year.

The 2012 budget proposal includes the temporary suspension of 13th and 14th month salary payments for civil servants and pensioners who earn more than 1,000 euros a month.

In the private sector, employees will be requested to work half an hour more per day. VAT is set to be hiked while the health and education budgets will be slashed.

“A strong 2012 budget is more crucial than ever in the light of the experience in 2011,” said Rehn.

“The measures included by the Government are certainly courageous, as the situation requires. My services will examine in detail the budget in the coming days.”

Gaspar said Monday that Portugal’s economy is next year expected to shrink by a further than previously forecast 2.8 percent, following a 1.9 percent contraction this year.

Unions called for strike action, saying the austerity measures contained in the budget would accelerate poverty, unemployment and inequality.

Manuel Carvalho da Silva of the CGTP union told AFP Tuesday: “The Portugese people need to be mobilised.

“We must make people aware and make them react,” to the proposed measures, he said.

Rehn remained more optimistic. He said: “I believe that Portugal can rise to the challenge, put its house in order, regain investors’ confidence and look to a prosperous future.”