Portugal ‘in a firm position’ to return to European fiscal rules

European Union (EU) finance ministers on Tuesday agreed to return next year to fiscal rules that have been suspended since 2020, with Portugal having a “strong position” to comply with them, the finance minister said in Brussels.

Speaking after the Ecofin Council meeting, Fernando Medina noted that “important achievements in economic governance” have been made in Europe and in particular in the euro area, not only in terms of the rules that will apply in the near future, but also in terms of negotiations on the reform of economic management, “essentially, new rules that will replace the current ones, which will resume their entry into force.”

Medina stressed that in the conclusions adopted on Tuesday on the 27th, it was agreed, as the European Commission had proposed, “the restoration of European rules, which were suspended” for almost four years – from 2020 due to the crisis caused by the covid pandemic – 19.

“After the financial crisis, after the pandemic crisis, now, after the most acute period of inflationary processes, we are waiting for the return of European rules embodied in concrete, observing the rules of deficit and debt,” he said, indicating that this would be “a fact that will inform European policy various Member States”.

Medina reiterated that “Portugal is in a very strong position” as it “systematically” runs budget deficits below the 3% threshold and is also “making a very significant reduction in public debt, which has proved to be an important and correct bet, especially at a time when times when interest rates are high.

On the other hand, he stressed, “the conclusions were also agreed on the process of developing new fiscal rules, basically new rules that will replace the current ones, resume entry into force and determine what the policy is.” will be the budget in the future.”

Among the points of conclusion adopted by the EU finance ministers, Medina highlighted the consensus to “retain the 3 percent rule for the budget deficit cap” and “adapt what was the old benchmark for debt reduction, with the prospect of having different rhythms depending on the different realities of member states.” on Debt Reduction,” also emphasizing “focus on the elements of investment and structural reforms that countries can undertake.”

Regarding the proposals currently under consideration for future debt reduction rules, the threshold of which should also remain unchanged in the future governance structure, i.e. 60% of gross domestic product (GDP), the Minister of Finance acknowledged that Portugal did not agree with one of the them. questions on the table, while arguing that “there is no reason to complain” about the proposal of the Commission.

Medina explained that among the proposals there is one in the sense of “giving more weight” to the so-called “debt sustainability analysis”, which is recognized to be “important, but should be considered relative” because “it is very sensitive to indicators that are used for the future, namely growth rates, but it is also a very sensitive indicator of what has happened in the past with the public debts of countries”, and “it raises a number of questions not only for Portugal, but for a set of countries” and institutions.

Recalling that the European Central Bank itself had raised the issue of “this methodology when converted to an indicator of the effectiveness of economic policy”, the minister pointed out as an example that with this sustainability analysis “a country with a historically high level will have, according to this methodology, less need to reduce its debt than a country that increased its debt and then had a very significant reduction.”

Emphasizing that the debate is ongoing, Medina noted that there is neither a “geographical split” in this discussion – “this is not a north-south discussion” like many others in the past on economic issues – nor an “ideological” one, since the “Warning” about The risks associated with this methodology “came from several directions”.

The Minister said that another “important point of this agreement” is “the efforts that will be made by the Commission together with the countries to speed up the work” so that the legislative process can be completed between the end of 2023 and the beginning of 2024, still within the term of this Commission, chaired by Ursula von der Leyen – given that the European elections will take place in May 2024 – and “Europe can have a new system of rules that is simpler, more direct, more applicable and also more flexible in its ability to adapt to different circumstances.”

“Unfortunately, the position we advocated on the need to create a more reliable budgetary capacity at the central level is not yet included in the proposal of the Commission,” he lamented, expressing confidence that this will eventually happen, even in light of the experience of recent years, which emphasized the importance of having Europe has a permanent tool to deal with crises, such as the pandemic that forced the bloc to arm itself with a bazooka.

“We are convinced that this is, in principle, one of the important positive legacies of the crisis periods that Europe has experienced, and that sooner or later it will finally take root in the institutional framework of economic management. our system of tools at the European level,” he said.

The conclusions adopted by the Ecofin Council follow the European Commission’s presentation of recommendations on economic governance reform in November last year and the announcement, already in March of this year, of the announcement of fiscal policy guidelines for the following year.

In this communication, the European Commission has proposed resuming excessive deficit procedures in the spring of 2024, after a four-year hiatus, although it advocates giving Member States more wiggle room in adjusting deficit and debt paths.