No bailout yet for Portugal, which has seen its yields go nuts.
Following the meeting of the Heads of State and Government on 11 March 2011 in Brussels, Jose Manuel Barroso, President of the European Commission, and Jean-Claude Trichet, President of the European Central Bank (ECB), made the following statement:
The Portuguese authorities have formulated in a “Note on policy guidelines and measures that the Portuguese Government will adopt to address main economic challenges” an ambitious policy response to proceed with fiscal consolidation, address structural problems and strengthen the financial system.
- On fiscal policy, the announced measures underline the government commitment to achieving the fiscal targets of a general government deficit of 4.6 per cent of GDP in 2011, 3 per cent in 2012, and 2 per cent in 2013. The 2011 budget already contained substantial structural consolidation measures of 5 per cent of GDP for 2011. Estimates had shown that under cautious macroeconomic assumptions a fiscal gap of ¾ per cent of GDP remained. For 2012 and 2013, the gaps based on unchanged policies amounted to 2¾ and 1 per cent of GDP respectively. With today’s announcement, the Portuguese authorities have committed to an additional substantial package of measures which will allow to achieve the fiscal targets.
- The Portuguese authorities also commit to addressing the existing vulnerabilities in the financial system. They acknowledge the need for a reduction in the funding gap of the banking system through appropriate de-leveraging. The need for strengthening bank capital is also acknowledged and banks will be required to submit to Banco de Portugal individual plans specifying timelines and pace of appropriate de-leveraging and capital reinforcement. These plans shall be assessed by the ECB and the European Commission, in line with respective competencies. Recapitalisation needs, based on rigorous and timely stress tests, are to be communicated as soon as possible to ensure that the recapitalisation needs of the Portuguese banks are being appropriately addressed.
- In order to raise the growth potential and overall flexibility of the Portuguese economy, the government has committed to a far-reaching structural reform agenda which addresses growth bottlenecks and structural rigidities. The commitment to concrete dates of the reform in many areas is especially welcome.
- Regarding labour market reforms, the actions announced are reducing distortions and segmentation in the labour market. Further concrete measures would be conducive to raising potential output growth. The Portuguese government has rightly identified the inefficiencies in the judicial system as an important impediment to economic activity and is committed to implement substantial reforms. The announced measures to improve the enforcement of competition rules should contribute to a more competitive environment. Reforming the housing market as announced has the potential of significant positive effects both on activity and labour mobility, while limiting household indebtedness. In addition, the government has committed to further reform efforts in the area of energy, transport and services sectors.
We welcome and support the announced policy package. The authorities should address any need for further specification of measures, most notably with respect to labour markets, in the context of the National Reform and Stability Programmes to be presented in April. The present momentum should be maintained and the Portuguese authorities should ensure full implementation of all measures. The policy follow-up will be closely monitored by the European Commission, in liaison with the ECB, in the context of enhanced surveillance.