In his first state of the nation address prime minister Pedro Passos Coelho will remind the Portuguese that the country has been doing everything right despite the growing backstage rumours about the possibility of Portugal being the next in line to renegotiate the budget targets.
Remarkable, good or important progress are words which have been used lately by European officials to describe the Portuguese bailout programme. Eurogroup chief Jean-Claude Juncker and European Central Bank President Mario Draghi are among those who have praised the Portuguese adjustment programme agreed with the bailout troika one year ago, and these compliments will certainly help the prime minister this Wednesday afternoon in his state of the nation address in the Portuguese Parliament.
In his first state of the nation address Pedro Passos Coelho will remind the Portuguese that the country has been doing everything right and the sacrifices which have been demanded of its citizens are worth it, despite the growing backstage rumours about the possibility of Portugal being the next in line to renegotiate the targets of the memorandum of understanding signed in 2011 in exchange for a €78bn bailout package.
The Minister of State and Finance Vítor Gaspar admitted after Monday’s Eurogroup meeting in Brussels that the adjustment process could be “eased”, days after the Portuguese Constitutional Court ruled the suspension of holiday and Christmas bonuses for public servants as illegal in 2013.
The Portuguese government is looking for measures which will have an equal budgetary impact so that these will be included in the new state budget for 2013, and will seek to ensure these measures will deserve a greater political and social consensus”, Vítor Gaspar told reporters, adding that it will also be necessary to “discuss various alternatives with the international partners”, he said according to news agency Lusa.
What the minister meant with his statement remains to be seen, with the focus now turning to the prime minister’s address later today.
Will Portugal have more time to fulfil its budget targets (4.5% deficit this year and 3% in 2013), after Spain gained the possibility of delaying the accomplishment of its own deficit creating a precedent for Portugal to do the same, and after Minister Vítor Gaspar admitted it has been “increasingly difficult” to control the 2012 budget? Or will Portugal want to continue being regarded as the good pupil who strictly complies with its commitments?
The deficit goals for this year seem harder to achieve after the latest figures were released. The country showed a €3.2bn deficit in the first quarter of 2012, corresponding to 7.9% of the GDP, from the 7.5% deficit one year ago, as the state paid higher interest rates and injected money into several state-owned bodies. During the 12 months ending on 31 March, the budget deficit was equivalent to 4.3% of GDP compared to 4.2% in the same period one year ago.
Committed to the agreed deficit targets, Prime Minister Passos Coelho said: “The results observed are positive in so far as they indicate that we are making a successful adjustment.” Even recognising the way is becoming increasingly difficult mainly due to external factors.
For 2013, after the Constitutional Court declared the suspension of bonuses as unconstitutional on 6 July, both the prime minister and now the minister of finance have stated that the government is looking for new, equivalent ways that will enable it to reach its budget targets. One of the options on the table is the suspension of at least one bonus for both public and private sector workers but the final decision will only be announced with the drafting of the 2013 state budget.
Unemployment figures are not helping the overall scenario. Earlier this week, the Organisation for Economic Co-operation and Development (OECD) said the unemployment rate in Portugal was expected to rise to 16.2% in 2013.
Softening the way are the better-than-expected figures for the gross domestic product in the first quarter of the year and the central bank’s summer report, released Tuesday, revising down its estimates for the economy’s contraction for 2012.
But what will Portugal’s strategy be? To ask for more time or more money? Or stick to its agreed targets?
With many saying Portugal will end up following Spain’s way gaining more time, financial daily Jornal de Negócios wrote in its Wednesday’s edition that this scenario was not on the table in order not to damage Portugal’s reputation, even because more time means more money. According to the newspaper the solution lies in renegotiating with the troika the balance between revenue and expenditure. Once the Constitutional Court ruled that the state will not be able to scrap public servants’ bonuses, Portugal is faced with a less-than-expected decrease of expenditure which will have to be balanced with an increase in revenue in order to accomplish its deficit target.