Brussels has approved Portugal’s 2016 State Budget proposal, but has attached a health warning that there is a risk of default.
The European Commissioners have given the green light to António Costa’s socialist agenda and the often tense negotiations now are over, to the relief of Angela Merkel who said "it is important the Portugal succeeds."
This afternoon’s meeting has left Portugal's PM with the task back home of explaining a range of annoying yet small tax increases. There are nothing when compared to the fact he has pushed through the sort of energising budget that Brussels does not like and does no trust to be anyway near accurate.
Costa has had the upper hand throughout these negotiations as he has been elected to push through a partial dismantling of the damaging austerity programme. He aims to do this by increasing disposable incomes, raising pensions and the minimum wage and reducing the unpopular VAT rate on food in restaurants and cafes.
Brussels was faced with a choice of allowing Portugal’s budget through without comment, unthinkable when its job is to impose the conditions of the Stability and Growth Pact and to play down ambitious growth projections, or at least while making enough fuss to keep Portugal’s negotiation team on its toes but still ending up with what can be seen as a ‘soft’ solution.
The warning label attached to the 2016 Budget is an annoying and unnecessary one but reflects the fact that Brussels had to climb down on many of the Budget points where its team at first demanded more austerity, or at least fewer tax reductions.
After a meeting between Costa and Germany’s Chancellor, Angela Merkel, the Portuguese prime minister assured everyone that the Budget now will go ahead ‘as is’ and that the deal is done.
The draft Budget had been the subject of criticism by some European leaders who said last week that that the draft represented "serious noncompliance" with European rules, they were right but Brussels could do little else but let the Budget through largely unscathed.
On Wednesday, the International Monetary Fund and the European Commission each issued reports that were critical of the Draft Budget. These were ignored by the negotiation team from Portugal as is pressed home its advantage.
Angela Merkel said, "I think it is very important that Portugal continues with the path towards more growth, more jobs and solid budgets and that it succeeds. This is what we wish for Portugal."
The German Chancellor also wanted Costa to continue the good work of the previous government, forgetting perhaps who he was and how he got elected.
This endorsement of the outcome shows how Merkel has remained in power for so long but how the ratings agencies will react to the finalised budget and the health warning mentioning the word ‘default’ remains to be seen.
António Costa and his team now have to do their level best to ensure the targets set out in the 2016 State Budget are met. Hopefully there are no more Banif's waiting in the wings to kick holes through the sheets of figures.
The Finance Minister was asked in the budget presentation press conference whether he was prepared to take further measures if things did not go according to plan.
Mário Centeno preferred to show confidence in the goals that had just been presented, "Let's us concentrate on vigorous implementation of this budget, because only in this way can we achieve the objectives and ensure it is not undermined," guaranteeing the aim of the deficit coming in well below 3%.
The qualification from Brussels that there is a risk of default reflects reality a little too accurately as far from Portugal's borrowing reducing as a result of years of austerity, borrowings have gone up to the sort of level that will take generations of taxpayers and an economic miracle ever to pay off.
