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Monday 19th of April 2010
April 14, 2010    

Portugal warned over budget deficit

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by Kay Murchie
Portugal warned over budget deficit

The European Commission has warned that additional measures may need to be taken by Portugal in order to cut its budget deficit.

Like Greece, Portugal’s public finances are in a dire state and last month, international credit rating agency, Fitch, cut the country’s credit rating to ‘AA-’ with a negative outlook.

According to Fitch, Portugal’s prospects for recovery are weaker than its fellow nations in the euro zone, which could put pressure on public finances.

There have been fears for Portugal after the country experienced a slump in demand for Government bonds.

While Portugal is not in the midst of a debt-crisis like Greece, it has announced a series of new austerity measures as it seeks to avoid a similar crisis.

Portugal said welfare benefits are to be slashed, tax breaks scrapped and a new tax rate of 45% introduced for people with an income of more than £135,000 a year.

The country is seeking to slash its public deficit from 8.3% to 2.8% of GDP.

However, Fitch argues that the Portuguese Government needs to introduce “sizeable” budget measures if it is to meet its target of 2.8% of national output by 2013.

Today, European Commissioner for Economic Policy Olli Rehn comments: “The Portuguese stability programme is ambitious and complete for the years 2011 to 2013, but additional measures may be needed, especially for this year, if risks to the macroeconomic and fiscal developments materialise.”

However Euro group president and Luxembourg Prime Minister, Jean-Claude Juncker, told AFP he does not see Portugal swimming in the same “choppy waters” as Greece.

Greece’s debt crisis has devalued the euro in recent months but the currency recovered this week after finance ministers of the euro zone nations agreed to provide emergency loans to Greece.

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