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ECB, EU Visit Portugal Under Measures Agreed on Debt Crisis
February 22, 2011, 11:35 AM EST
By Joao Lima
Feb. 22 (Bloomberg) -- European Central Bank and European Commission officials are visiting Portugal as part of measures agreed earlier this month to fight the debt crisis.
The visit is in accordance with a Feb. 4 statement by the heads of state and government of the euro area and European Union institutions, said an official at Portugal’s Finance Ministry in Lisbon, declining to provide further information.
European leaders said in the statement they had agreed steps including “assessment by the commission, in liaison with the ECB, of progress made in euro area member states in the implementation of measures taken to strengthen fiscal positions and growth prospects.”
Portugal is raising taxes and implementing the deepest spending cuts in more than three decades, aiming to convince investors it can narrow its budget gap further and avoid a bailout after the Greek debt crisis led to a surge in borrowing costs for high-deficit euro nations last year.
The spread between Portuguese and German 10-year bond yields was at 430 basis points today after reaching its euro-era record of 484 on Nov. 11. Ireland in November became the second euro country after Greece to seek a bailout and the first to request aid from the European Financial Stability Facility.
Pay Cuts
The Portuguese government is cutting pay by 5 percent for public-sector workers earning more than 1,500 euros ($2,051) a month, freezing hiring and raising value-added sales tax by 2 percentage points to 23 percent to help narrow a deficit that amounted to 9.3 percent of gross domestic product in 2009, the fourth-biggest in the euro region after Ireland, Greece and Spain.
Portugal will report a 2010 budget deficit equivalent to 7 percent of GDP or less than 7 percent, narrower than the 7.3 percent gap the government had forecast, Prime Minister Jose Socrates said on Jan. 28. The government has set a target for a budget deficit of 4.6 percent of GDP in 2011, and aims to reach the EU limit of 3 percent in 2012.
The Bank of Portugal on Jan. 11 said GDP will shrink 1.3 percent in 2011 as consumer demand drops and the government cuts spending. Portugal’s economic growth has averaged less than 1 percent a year in the past decade, one of Europe’s weakest growth rates.
Portuguese newspaper Jornal de Negocios earlier today reported that ECB and European commission officials are in Lisbon to assess Portugal’s public accounts and the strength of the financial industry.
ECB financing to Portuguese banks rose 0.3 percent in January from the previous month to 41 billion euros, a second monthly increase.
February 22, 2011, 11:35 AM EST
By Joao Lima
Feb. 22 (Bloomberg) -- European Central Bank and European Commission officials are visiting Portugal as part of measures agreed earlier this month to fight the debt crisis.
The visit is in accordance with a Feb. 4 statement by the heads of state and government of the euro area and European Union institutions, said an official at Portugal’s Finance Ministry in Lisbon, declining to provide further information.
European leaders said in the statement they had agreed steps including “assessment by the commission, in liaison with the ECB, of progress made in euro area member states in the implementation of measures taken to strengthen fiscal positions and growth prospects.”
Portugal is raising taxes and implementing the deepest spending cuts in more than three decades, aiming to convince investors it can narrow its budget gap further and avoid a bailout after the Greek debt crisis led to a surge in borrowing costs for high-deficit euro nations last year.
The spread between Portuguese and German 10-year bond yields was at 430 basis points today after reaching its euro-era record of 484 on Nov. 11. Ireland in November became the second euro country after Greece to seek a bailout and the first to request aid from the European Financial Stability Facility.
Pay Cuts
The Portuguese government is cutting pay by 5 percent for public-sector workers earning more than 1,500 euros ($2,051) a month, freezing hiring and raising value-added sales tax by 2 percentage points to 23 percent to help narrow a deficit that amounted to 9.3 percent of gross domestic product in 2009, the fourth-biggest in the euro region after Ireland, Greece and Spain.
Portugal will report a 2010 budget deficit equivalent to 7 percent of GDP or less than 7 percent, narrower than the 7.3 percent gap the government had forecast, Prime Minister Jose Socrates said on Jan. 28. The government has set a target for a budget deficit of 4.6 percent of GDP in 2011, and aims to reach the EU limit of 3 percent in 2012.
The Bank of Portugal on Jan. 11 said GDP will shrink 1.3 percent in 2011 as consumer demand drops and the government cuts spending. Portugal’s economic growth has averaged less than 1 percent a year in the past decade, one of Europe’s weakest growth rates.
Portuguese newspaper Jornal de Negocios earlier today reported that ECB and European commission officials are in Lisbon to assess Portugal’s public accounts and the strength of the financial industry.
ECB financing to Portuguese banks rose 0.3 percent in January from the previous month to 41 billion euros, a second monthly increase.
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