SANTANA LOPES’ government has just 10 days to find a solution to raise 556 million euros, the amount necessary to maintain the budgetary deficit at less than three per cent of Gross Domestic Product (GDP) as laid down in the Stability and Growth Pact (Pacto de Estabilidade e Crescimento).
Panic has set in following the “bombshell” decision taken by the European Commission, earlier this week, to throw out the government’s proposal to temporarily transfer or “lease-back” 65 public buildings to a bank syndicate. Brussels’ decision means that the government now finds itself in a high-risk situation that could potentially mean the target amount will not be met. Without the extraordinary income that would be gained from the public buildings’ transaction, the deficit is likely to remain close to five per cent of GDP.
Crisis talks have already taken place between Santana Lopes and his Finance Minister, Bagão Félix. The President of the Republic, Jorge Sampaio, is also extremely concerned about the situation, and has called for a meeting with the Prime Minister and the Finance Minister which was due to take place earlier this week.
The temporary transfer of the public buildings would have permitted the advancement of sufficient income to cover the 2004 State deficit. However, Bagão Félix never revealed the amount involved in the transaction, the duration of the proposed agreement or the taxes to be paid on the income from the buildings involved in the deal; buildings such as the Instituto da Vinha e do Vinho (Vineyards and Wine Institute) and the Instituto Nacional de Habitação (National Habitation Institute).
The European Commission saw the proposal as a short-term solution, that would only worsen Portugal’s long-term deficit problem, and so felt it necessary to throw out the submission. The initial plan had been to actually sell the state buildings, but, due to criticism from the opposition, the idea was changed to being a temporary transfer. Regardless of any opinions on the issue, the rules imposed by Brussels do not allow Member States to sell property to institutions whose intentions are to make a profit from a follow-on rental situation. For example, the Segurança Social cannot sell its buildings with a final objective of “softening” the deficit. For this reason, it is going to be very difficult, if not impossible, for the government to find a suitable solution in the coming days, and failure to meet the pact could result in penalties.