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Portugal Needs ‘Rapid’ Reforms After One-Offs in 2011, EU Says

December 20, 2011

(For more on the euro crisis, click on EXT4.)

Dec. 12 (Bloomberg) -- Portugal reached its budget-deficit targets this year though one-off measures and needs to enact proposed austerity policies against powerful opposition to ensure lasting debt reduction, the European Commission said.

“Perseverance and resolve of the government will be required to overcome strong vested interests that stand in the way of reforms,” the Commission said in a report dated Dec. 2 following the second review of Portugal’s bailout program obtained by Bloomberg News. The country has to “rapidly” adopt reforms to reduce labor costs and increase flexibility.

Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro ($104 billion) aid plan from the European Union and the International Monetary Fund.

Portugal will meet its budget-deficit limit for this year after taking over banks’ pension funds to the state, Finance Minister Vitor Gaspar said on Dec. 5. Passos Coelho said the same day that the transfer “will allow our deficit to be substantially below 5.9 percent” of gross domestic product.

The Portuguese government said on Dec. 2 that the value of the planned transfer of banks’ pension funds may reach 6 billion euros. The government has also announced a Christmas income-tax surcharge to help cover the shortfall this year.

The government aims to trim the budget deficit from 9.8 percent of GDP in 2010 to 5.9 percent in 2011, 4.5 percent in 2012, and to the EU ceiling of 3 percent in 2013. Debt will reach 100.8 percent of GDP this year and peak at 106.8 percent in 2013 before declining, the government forecast on Aug. 31. Debt was 93.3 percent of GDP in 2010.

‘Good Start’

Finance Minister Gaspar said on Nov. 16 said the second quarterly review of the country’s financial-aid program was “successful,” allowing it to receive another rescue payment tranche of 8 billion euros. The so-called troika of the Commission, European Central Bank and IMF said on that day that Portugal’s plan is “off to a good start,” adding that the 2012 budget includes “bold and welcome measures.”

The 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,100 euros a month. Tax deductions will be reduced and the government plans to increase the value-added tax rate on some goods. Spending cuts in 2012 represent 4.4 percent of GDP, including reductions on health-care spending, while revenue increases represent 1.7 percent of GDP.

--Editors: James Hertling, Eddie Buckle

To contact the reporters on this story: Joao Lima in Lisbon at; Brian Parkin in Berlin at

To contact the editor responsible for this story: Tim Quinson at

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