Portugal supports the European Commission’s recommendation on Monday that the rules on budgetary discipline continue to be suspended also in 2023, but not for “self-interest”, as it “would not need this flexibility”, said the finance minister.
“We see this decision by the Commission as positive, but it is clear that Portugal would not need this easing,” Fernando Medina began by reacting, speaking at the entrance to a meeting of the Eurogroup, the informal forum of eurozone finance ministers, hours after Brussels confirmed that, in its analysis, the war in Ukraine justifies keeping the clause that temporarily suspends the rules of the stability and growth pact (SGP) in terms of deficit and debt limits activated until the end of 2023.
Medina recalled that at the previous Eurogroup meeting in April, he had already had the opportunity to say “that Portugal advocated having this flexibility for 2023 because it is a measure of prudence, of caution, given an unstable macroeconomic environment, uncertain in several dimensions, and that it was therefore preferable for countries to have their instruments available and not have additional pressure here.
“At the same time, I had the opportunity to underline that we already comply with the rules today and Portugal will continue to comply with those rules. So our positive sense towards this extension regarding compliance with the rules does not have any national self-interest in mind, because we have a very clear strategy regarding that,” he said then.
Portugal closed 2021 with a deficit of 2.8% of gross domestic product (GDP) – below the 3% threshold in the SGP – and the government wants to reduce it further this year, to 1.9% of GDP, a projection now also shared by the European Commission, according to the update made a week ago to the spring forecasts.
“And even with regard to debt, where Portugal presents an indicator above the recommended standards, Portugal largely complies with what we are obliged to do when we are in that situation of having a higher debt, which is to comply with an annual reduction of a certain amount,” Medina continued.
“Portugal is reducing considerably more, as a percentage of GDP, that imbalance. That is how it did it in 2021 and that is how we will do it in 2022,” he assured.
The European Commission today recommended that the rules on budgetary discipline remain suspended until the end of 2023, in view of the economic effects of the war in Ukraine, energy prices and ongoing disruptions in the supply chain.
The EU executive’s recommendation is contained in the “spring package of the European semester” of economic and budgetary policy coordination, adopted today, which already takes into account the macroeconomic forecasts published just a week ago by the Commission, which has sharply downgraded the prospects for recovery of the European economy, mainly due to the effects of the war launched by Russia in February in Ukraine.
“The Commission considers that the conditions are met to maintain the general escape clause of the SGP in 2023 and to deactivate it from 2024. The increased uncertainty and strong risks of a deteriorating economic outlook in the context of the war in Ukraine, the unprecedented increase in energy prices and the continued disruptions in the supply chain justify the extension of the clause until 2023”, reads the Communication presented today by the EU executive.
Recalling that the escape clause from the SGP rules – which require member states’ public debt not to exceed 60% of gross domestic product (GDP) and impose a deficit below the 3% threshold – was activated in March 2020, allowing member states to “react quickly and adopt emergency measures to mitigate the economic and social impact of the pandemic” of Covid-19, Brussels considered today, unsurprisingly, that the new context justifies maintaining the temporary suspension of the rules.
The European Commission’s recommendations today are already based on its spring forecast, published on 16 May, in which Brussels sharply revised downwards its forecast for economic growth in Europe, now estimating GDP increases of 2.7% this year in both the EU and the euro area, whereas in the winter it projected increases of 4% in both cases.