BRUSSELS (Reuters) – The European Commission said on Wednesday that Portugal’s draft budget for 2020 was at risk of breaking European Union fiscal rules because of insufficient progress in reducing its structural deficit.
The opinion is a blow to Portuguese Finance Minister Mario Centeno, who chairs the powerful Eurogroup of finance ministers – a body that participates in the oversight of fiscal policies in the 19 states of the euro zone.
In his first opinion on the budget of a euro zone government since he took office in December, EU Economics Commissioner Paolo Gentiloni took a harsh line, even though Portugal’s debt is falling and it expects to run a budget surplus this year.
The Commission said Lisbon should balance its structural budget, which strips out one-off revenues and spending, and is expected to be in deficit in 2019 and in 2020.
That measure could help to further reduce Portugal’s debt which, although dropping, is forecast to be around 116% of GDP.
Portugal updated its budget in December after an election in October that the ruling socialist party won. The Commission had assessed the budgets of other euro zone countries in November.
Gentiloni, a socialist former prime minister of Italy, took over from France’s Pierre Moscovici as economics commissioner in December.
“The Commission is of the opinion that the updated Draft Budgetary Plan of Portugal is at risk of non-compliance with the provisions of the Stability and Growth Pact,” the EU executive, which is the guardian of EU rules, said in its opinion.
It said Portugal’s structural balance was at “risk of significant deviation from the required adjustment toward the medium-term budgetary objective in 2019 and 2020”.
Euro zone countries that fail to meet EU fiscal targets can be fined, although this has never happened yet.
(Reporting by Francesco Guarascio and Jan Strupczewski in Brussels and Catarina Demony in Lisbon; Editing by Kevin Liffey)