Sanctions ‘victory’ comes with demands for immediate €460 million cut to Portugal’s budget

As the dust settles on yesterday’s news that Brussels would not be imposing economic sanctions on Portugal, the reality is that a Plan B of new austerity measures is now very much on the table. And if it is not taken on board by October this year, chances are that EU leaders will withdraw funding on vital structural funds.

This is the bottom line of what was hailed as “good news” only yesterday by Foreign Affairs minister Augusto Santos Silva (click here).

As national tabloid Correio da Manhã explains, Brussels’ decision not to impose sanctions for a 0.2% slide in deficit targets between 2013 to 2015 may have been a “political victory for the Portuguese government”, but “the margin for failure now is much narrower” as EU leaders are demanding additional measures of budgetary consolidation of 0.25% of GDP – “in other words a cut of €462 million”, says the paper.

And while sanctions may now be a threat of the past, structural funds like those benefitting almost every region in the country under Portugal 2020, will only be confirmed in 2017.

CM explains this is because their payment is dependent on Portugal’s budgetary performance this year, and targets for 2017.

A leader article written in the paper today by PSD MP Luís Campos Ferreira, suggests “we can all breathe deeply” for the summer holidays at least, but that “guarantees given by the government continue to fail to convince” EU moneymen.

Referring to the news earlier in the week that figures for the first half of the year showed that public deficit has fallen by €971 million, Campos Ferreira claims this is solely because “risks have been pushed forwards for later, in the good tradition of Socialist governments”.

Thus the pressure is still very much on, with CM adding that Brussels may demand changes in IVA (VAT) ratings as well as “additional measures”.

Finance Minister Mário Centeno has already retorted, saying nothing will change regarding IVA this year – but the writing is on the wall.

As Eurogroup leader Jeroen Dijsselbloem has already warned – apparently “disappointed” by the decision not to impose sanctions – “it should be clear that despite all the efforts made, Spain and Portugal are still in danger”.

What continually falls into the small print is that while Spain and indeed France should be in the same boat as Portugal (both have gone through the same 2013-2015 period posting higher than acceptable ‘excessive deficits’) only Portugal has the shortest time-scale allowed for recovery.

Both Spain and France have been allowed two years’ grace to get their deficits into shape.

And banking sources add that “what has been completely forgotten” in the sanctions hullabaloo is that “Germany is now in the sixth consecutive year (or more) of violating the current account surplus rules, and guess what? Nothing happens”.

A question on this very issue was issued to the European Commission in May by William the Earl of Dartmouth, who is still awaiting a written reply.

“Germany’s annual current account surplus has consistently exceeded 6% of GDP since 2011, placing it in violation of EU rules requiring Member States to restrict external surpluses to no more than 6% of GDP.

“Will the Commission be taking the necessary disciplinary action against Germany for this repeated violation of EU rules? If not, why not?”

The UK’s Telegraph explained last year that the trade surplus actually threatens eurozone stability more than the percentage point slide of southern countries’ excessive deficits.

[email protected]