EU warns Socialist-led Portugal on budget commitments

(STRASBOURG) - The European Commission on Tuesday demanded that the Portuguese government rework its draft budget for this year because it falls short of commitments to reduce public spending.

The Socialist Party-led government took office in November and submitted its budget for 2016 to its EU overseers months behind schedule following inconclusive elections in October.

"We have not made enough progress towards complying with the requirements of the Stability and Growth Pact," Commission Vice President Valdis Dombrovskis told a briefing in the eastern French city of Strasbourg, referring to EU rules on public spending.

"So the work will continue extensively during the next few days," he said.

At issue is a Commission recommendation that Portugal cut public spending by the equivalent of 0.6 percent of annual economic output, way more than the 0.2 percent the government wanted.

The Commission, the executive arm of the EU's 28 member states, has until Friday to decide if Portugal's budget is in serious violation of EU rules, in which case it must be resubmitted.

"Basically, we are talking about additional fiscal measures to move the draft budget nearer to the Commission's recommendations," Dombrovskis said.

Since taking office in November, Prime Minister Antonio Costa has sought to pull off a tricky balancing act, satisfying both Brussels and placating the domestic discontent over the years of austerity cutbacks which helped bring the Socialists to power.

The government said last week it would cut the budget deficit to 2.6 percent of Gross Domestic Product this year, a more aggressive target than the initial 2.8 percent plan, due to European Union pressure.

The deficit is estimated at 4.2 percent of GDP for 2015, well above the bloc limit of 3.0 percent, reflecting the costly state bailout of a failed bank.

Portugal received a massive international debt bailout in 2011 that saved it from defaulting, but in return the country had to introduce a string of austerity measures.

In four years, more than 78,000 public sector jobs were cut -- more than 10 percent of the total 650,000 -- alongside other steps the creditors said were needed to return the public finances to balance and put the economy back on track.