Portugal says it can avoid fiscal slippage this year

Portugal said Monday it can take extra steps if needed to meet its deficit limit this year as it seeks to avoid sanctions from Brussels for violating its fiscal commitments.

“The Portuguese government is ready to adopt fiscal measures to correct any eventual deviations on the budgetary execution,” Finance Minister Mario Centeno wrote in a letter to the European Commission.

Portugal is on track to bring its budget deficit “clearly below” a European Union limit of 3.0 percent of gross domestic product (GDP) this year, the minister added.

The government’s budget for 2016 outlines “an additional buffer of expenditure cuts” worth 346.2 million euros ($381.9 million), or 0.2 percent of GDP, that can be put in place “immediately” if needed, the finance ministry said in a report that accompanied the letter.

It outlines further contingency measures worth 196.6 million euros which “can be used in case of larger deviations”, the report added.

Eurozone finance ministers agreed last week to officially begin a sanctions procedure for Portugal and Spain for failing to bring their budget deficits into line.

Both countries, who now must lobby the EU to plead their case, could face fines of up to 0.2 percent of GDP — nearly 2.2 billion euros ($2.4 billion) in Spain’s case and 360 million euros for Portugal based on 2015 data under an “excessive deficit procedure.”

“Sanctioning the past doesn’t make political or economic sense in the case of countries that are already taking effective action, as is the case of Portugal,” Centeno wrote in the letter.

Bailed-out Portugal, long considered a star reformer, sharply cut its budget deficit from close to 10 percent of GDP in 2010 to 4.4 percent last year, but that still overshoots targets and the bloc’s limit.

The country vows to cut the deficit to 2.2 percent of GDP this year.