Ministers' rubber-stamped the recommendation, enabling the country to go from the corrective procedure to the preventive procedure of the euro-zone Stability and Growth Pact.
A top European Union finance watchdog said on Wednesday that the European Commission made an ‘ad hoc’ correction to spending limits stipulated for euro-zone members in order to recommend, in May of 2017, that the excessive deficit procedure to which Portugal had been subject since 2009 be closed.
According to the annual report of the European Budget Council, relating to 2017 data but published on Wednesday, “in the final assessment of … Slovenia and Portugal, the Commission made an ad hoc correction to the limit of the spending target, adjusting the medium-term rate of potential GDP growth.”
On 22 May of 2017, the commission decided to recommend to the Council of Ministers that the excessive deficit procedure relating to Portugal be closed. Ministers’ rubber-stamped the recommendation, enabling the country to go from the corrective procedure to the preventive procedure of the euro-zone Stability and Growth Pact.
The argument given at the time by the commission was that Portugal had narrowed its budget deficit to 2% of gross domestic product in 2016, below the 3% limit. The commission also projected a deficit of 1.8% in 2017 and 1.9% this year, on which basis the excessive deficit procedure could be closed.
The European Budget Council is highly critical of that approach.
“The overall assessment of the Commission is highly opinion-based, lacking at times conclusive explanations, which denotes the existence of elements of tolerance,” its report states. “The update of the rate of medium-term potential GDP growth, using recent forecasts, opens a problematic precedent, not least because it is applied asymmetrically: it is used only to make the assessment … more flexible.”
The report also notes the budget slippage in Portugal last year, largely due to a capital injection in state-owned savings bank Caixa Geral de Depósitos (CGD).
On 23 April, Eurostat, the EU’s statistical arm, announced that Portugal last year had the second-largest deficit in the EU, at 3% of GDP, due to the impact of the CGD operation. Without that, it estimated, the deficit would have been 0.9%.