Brussels Asks Portugal to Present an Ambitious Plan for Banking Sector, Debt and Productivity

14 March 2018

The European Commission wrote to Mario Centeno to advise where it believes that imbalances exist in Portugal’s economy: private and public debt, defaulted loans and productivity. It called for an ambitious and detailed plan for reform.

The European Union argued that Portugal still has work to do in vital areas to correct imbalances in the economy. Brussels alleviated the severity of its view on the country’s structural problems, removing Portugal from the list of countries suffering from “excessive imbalances” to just “imbalances.” In a letter to Finance Minister Centeno, the EC asked the minister to deliver an “ambitious and detailed” reform plan by April aimed at correcting the imbalances and maintaining Portugal efforts at reform.

When the EC announced that it would upgrade its view of the Portuguese economy, the Commission added a caveat in comparison to the other countries that received similar upgrades – i.e. France and Bulgaria. The Vice-President of the European Commission, Vladis Dombrovsky, explained Portugal’s differentiated treatment by a need for “interpretation.” The EC will present the country with a letter indicating the measures that Portugal is expected to submit in April.

The letter sent to Mr Centeno, dated Wednesday, was signed by Mr Dombrovsky and Pierre Moscovici, the commissioners for economic affairs, and signals risks stemming from public and private indebtedness. Despite the improvement resulting from the favourable economic environment, and also the measures adopted by the Portuguese government, indebtedness continues at persistently high levels. Brussels requested that the national authorities devote additional efforts to correct the imbalances.

More specifically, this means lowering public debt from its current perch above 125% of GDP, which in turn depends on maintaining limits to structural deficits. The reduction of accumulated private debt, which stands at 170% of GDP, down to “more prudent levels, needs to be continued, and the banks’ balance sheets require strengthening, in particular through an additional decrease in bad debts.” Brussels also pointed to the need to achieve sustainable trade surpluses to significantly reduce external dependence. The EC also believes that attaining higher productivity remains crucial to increasing competitiveness and growth.

Against this background, the Commission asks the Portuguese authorities to submit an “ambitious and detailed” reform program with the aim of promoting a sustainable correction of imbalances. The Commission “will closely monitor political action and the evolution of imbalances in within its supervision [of the Portuguese economy].”

Original Story: Observador – Ana Suspiro

Photo: Mário Cruz / Lusa

Translation: Richard Turner