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Democrat August 2002 (Number 64)

Recession-hit Portugal
faces prospect of EU fines

Map of Portugal

Portugal, one of the European Union's poorest countries, has become the first nation to face the prospect of huge fines for breaking the austerity rules underpinning the single currency.

The European Commission has started proceedings against Lisbon for failing to keep its budget deficit under control, moves that could lead to massive fines - equivalent to 0.5 per cent of Portugal's gross domestic product or £5,000 million. These measures are written into the Stability and Growth Pact. A spokesman said: "the Commission is obliged under the Treaty to initiate the excessive deficits procedure". This means invoking the "nuclear option" of Treaty Article 104 that authorises the EU to dictate draconian measures to any member state that threatens the integrity of monetary union by pursuing inflationary policies. A fact consistently denied by eurofanatics such as Claude Moraes MEP who denounced CAEF members as "liars" at a meeting in London last month for daring to expose the truth.

Designed to impose monetarist policies in the 12 countries inside the eurozone, the pact is coming under growing strain during the economic downturn.

Countries in times of recession tend to earn less from taxation, while at the same time pay out more in welfare support and to stimulate growth. However, under stability pact rules eurozone countries are expected to keep their budget deficits below 3 per cent regardless of national needs.

Portugal's new right wing government said publicly that the true 2001 deficit was 4.1 per cent and increased VAT from 17 to 19 per cent and slapped a recruitment freeze on the public sector. But spending cuts - described by the Finance Minister, Manuela Ferreira Leite, as "deep and violent" - could hit recovery prospects. A fine - possibly in the form of suspension of the £3,700 million due to Portugal through cohesion funds over six years - would make matters even worse. Despite the crisis, Lisbon has increased military spending in order to strengthen plans for a European army.

Significantly, much bigger eurozone countries - Germany, Italy and France - are also pushing up against the 3 per cent ceiling but they have escaped formal attacks from Brussels due to their greater economic and political strength.

EU EMU commissioner Pedro Solbes will have to wait until September for formal backing from other commissioners for his move against Portugal before it goes to EU finance ministers in October or November.

All EU states had agreed last March to bring their budgets into balance by 2004, but this is now a dead letter as the peoples of Europe are resisting euro-austerity and Brussels lurches into yet another crisis.