BRUSSELS (MNI) – Portugal may need to take more steps to cut its
budget deficit this year, if the macroeconomic risks to its budget
programme arise, the European Commission said on Wednesday, as it
published its assessment of the southern European country’s stability
programme.

“The Portuguese stability programme is ambitious and quite concrete
for the years 2011-2013 but additional measures of fiscal consolidation
might be needed, especially for this year, if risks to the macroeconomic
and fiscal developments materialise,” European Commissioner for Economic
and Monetary Affairs Commissioner, Olli Rehn said in a statement.

“Fiscal consolidation is essential also in view of the necessary
narrowing of the large external imbalances,” he said.

After the Commission’s comments, Portugal’s bond spreads over the
German Bund widened 6 basis points to 126 bps.

Portugal’s budget plan estimates that country’s deficit was 9.3% of
its gross domestic product in 2009. The EU-agreed limit for budget
deficits is 3% of GDP each year.

Public debt – which EU countries agree to limit to 60% of GDP each
year – was 66.3% of GDP in 2008, is thought to have risen to 77.2% of
GDP in 2009 and will be around 90% of GDP in 2013, the statement said.

“The Portuguese update appropriately aims at gradually reducing the
government deficit to 3% of GDP by 2013, in line with the Council
recommendation of 2 December 2009 to bring an end to the excessive
deficit situation,” the European Commission said in a statement.

“However, there are risks associated with the budgetary strategy,
as in every back loaded consolidation strategy, linked to the
uncertainty stemming from the fact that consolidation measures spelled
out in the programme still need to be adopted and implemented,” the
Commission said.

It also noted that “the somewhat favourable macroeconomic
assumptions after 2010 may imply a lower contribution of economic growth
to fiscal consolidation than envisaged, and therefore may require
further consolidation measures.”

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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