The European Commission has let everyone know that there remain "great differences" in the draft State Budget discussions with the Portuguese Government.
" We are working with the Portuguese government to reconcile our positions. The Commission will discuss this issue on Tuesday," said Annika Breidthardt, spokesman for Economic Affairs at the European Commission.
On January 27th the EU executive sent a letter to the Ministry of Finance to request additional information and to question why the plan presented by the Government foresees a reduction in the structural deficit by 0.2%, which it does not see as achievable.
On January 28th, a team from the European Commission arrived in Lisbon to work with the Ministry of Finance to try and bring the diverse positions closer together and prevent a possible negative opinion from Brussels.
If the European Commission continues to insist that the draft budgetary plan has "serious risk" of breaching of the rules of the Stability and Growth Pact, it can request Portugal to prepare a revised budget plan.
Once Budget has been assessed by the Commission, it will issue an opinion which will be analysed by the Eurogroup of EC finance ministers.
Throughout the process the Portuguese Prime Minister António Costa has remained upbeat, saying that there are a few technicalities to iron out but that his expansionist budget is the way forward for a country on it knees from the austerity programme imposed by the Passos
Coelho government that saw record taxes, record unemployment and low economic activity within the county and with low levels of outside investment in Portugal.
Economic shocks like the hopelessly inept sale of Banif have left the government little financial leeway but the benefit of being a new government is that performance and budgets can have an easier path is the PM plays his cards right.
The main concern for the new government is if ratings agency DBRS downgrades Portugal’s bonds to ‘junk’ status at the end of April.
This will trigger European Central Bank loan guarantee action and may leave the PM facing the abyss of a collapsing banking system.
See also
'Ratings agency says Brussels tussle threatens Portugal's credit score'
