Europe issued a stark warning on Wednesday that Portugal needs to cut its deficit this year, as finance chiefs steeled themselves for investors switching target from Greece. "The Portuguese stability programme is ambitious and quite concrete for the years 2011 to 2013, but additional measures were discussed today and may be needed especially this year," European Commissioner for Economic and Monetary affairs Olli Rehn told reporters in Brussels.
The Portuguese government has said it wants to reduce the deficit from 9.4 percent of output last year - a rise of 6.6 percentage points from the 2008 figure - by 1.1 percentage points to 8.3 percent for 2010. "We have to take into account potential risks of macro-economic and fiscal developments," Rehn said after talks on Portugal's position within the European Commission, saying the "worse than anticipated" 2009 deficit made it imperative to take preventive action.
The government in Lisbon had originally put the 2009 deficit at 9.3 percent. It has targeted 2013 for bringing its national budget shortfall back within euro area limits of three percent of output. European finance ministers on Sunday agreed a 30-billion-euro (41-billion dollars) backstop bailout for debt-stricken Greece, since when analysts have queried whether Portugal and Spain would hit market turbulence.
Asked if flagging up Portugal's problems so soon after attempting to draw a line under those in Athens would not simply inflame markets, Rehn replied that the EU has its "legal and institutional responsibilities." He underlined: "We therefore have no other option than to make the correct and honest assessment of Portugal's stability programme.
"Otherwise, we would not be credible and the situation would be even worse," he said. While analysts have speculated whether the series of loans agreed by partners within the 16 countries that share the euro currency would also be available to other countries whose debts get the better of them, Rehn insisted that funding would not be made easy to obtain.
He said he would outline "disincentives" to those thinking of applying for the financial aid on May 3, when the commission next assesses Greek progress towards meeting its budgetary targets after savage cuts in public expenditure and a slew of tax raises there.
It was a question of "how do we make this safety net of last resort so unattractive that no country voluntarily wants to end up in that situation," he stressed. Portugal has entered a bout of political wrangling since Fitch Ratings agency downgraded Portugal's standing at the end of March, in an echo of the triggers for Greece's debt crisis.
The finance chief for the euro countries, Luxembourg Prime Minister Jean-Claude Juncker, told AFP late on Tuesday that he did not envisage Portugal swimming in the same "choppy waters" as Greece. However, Portuguese Prime Minister Jose Socrates is struggling to obtain the concensus he has sought with opposition parties eyeing weakness ahead of the next presidential election in January next year.