Decisions on Portugal’s share of EU Covid ‘bazooka’ to come on day of crisis budget

June 19 promises to be a day with a lot of ‘financial news’ for Portugal.

It will be the day the European Council decides on whether or not to adopt the EU’s proposal for a major funding ‘bazooka’ to help countries over the crisis caused by the pandemic. And it will be the moment parliament in Portugal debates the so-called Supplementary Budget 2020 – an amendment to the State Budget compiled long before the virus changed everyone’s lives and aspirations.

Headlines have been proclaiming the €26 billion that could be coming Portugal’s way ‘if’ the EU’s spending plan – dubbed Next Generation EU – is approved. But it won’t be simple. Say tabloid reports, “Portugal will have to work hard if it wants to receive the money it has a right to”.

Authorities will have to “present investment plans and structural reforms aligned to recommendations from Brussels”.

And the mechanism for releasing this money – particularly the non-refundable grants – is involved in “some confusion, with representatives of several member states having to give binding promises to the Commission”, writes Correio da Manhã.

The €26 billion (€15.5 billion in grants, 10.8 billion in ‘loans with favourable conditions’) wouldn’t be the only form of funding destined to ease Portugal back onto the path of economic recovery. The terms of the next pluriannual budget allow for a further €1.1 billion – but none of this will come without a cost.

“Austerity is inevitable”, says a new study compiled by two economists at the Center for European Reform – and this is already spiking political ‘controversy’: PCP Communists for example say they fear a “spiral of indebtedness” looming.

The economists’ study does stress another reality: southern countries like Portugal will be much harder affected by this crisis, by dint of their economies so reliant on activities like tourism.

This will thus be tackled in part by the government’s Supplementary Budget which hopes to prepare what prime minister António Costa has already called a “programme of social and economic emergency”.

The strategy has not yet been ‘defined’ but it’s likely to include an extension to the lay-off scheme (to protect jobs) – even if this will need to be slightly adjusted – and a kind of ‘Simplex SOS’ to ‘incentivize public and private investment’.

While the Supplementary Budget may be funded by the ‘financial cushion’ Finance Minister Mário Centeno was accredited earlier this year with amassing, the EU bazooka will have to be funded by contracting debt (repayable over 30 years) on the international markets. It will require the introduction of a number of new European taxes, says the financial press.

These taxes would come in the form of levies on CO2 emissions and charges on operations of large companies. There would also be a tax on non-recyclable plastics.

In all, the new taxes would bring in roughly €30 billion a year, which – over the course of the next two pluriannual budgets – could amass somewhere in the region of €420 billion (thus ‘almost paying for’ the non-refundable grants of Next Generation EU).

The final formulas however are still ‘undecided’ in that the ‘frugal’ northern european states of Austria, Denmark, Holland and Sweden may still have quite a lot to say about the European Commission masterplan for the future (click here).