Portugal promises EU to cut budget deficit more in 2010

LISBON (BestGrowthStock) – Portugal’s prime minister has promised his European Union counterparts that he will cut the budget deficit further than planned this year, to 7.3 percent of gross domestic product, a government source said on Saturday.

Prime Minister Jose Socrates told other European Union leaders during a meeting in Brussels on Friday that his minority government would delay certain public works plans, enabling the larger-than-planned cut in the budget deficit, the source said.

Previously the government had planned to reduce the budget deficit to 8.3 percent of GDP this year from 9.4 percent last year.

“Portugal made this commitment to cut the budget deficit further at the European Union meeting,” the source told Reuters.

The move came as European Union officials worked through the weekend to set up a financial support mechanism to prevent Greece’s debt turmoil from spreading to other highly-indebted peripheral euro zone countries like Portugal and Spain.

Portugal came under heavy pressure to make bigger cuts in its budget deficit this week as worries over a spreading of Greece’s crisis intensified. Cutting the deficit more now could sooth concerns that Portugal’s debts are rising too fast.

The spreads on Portugal’s bonds over safer German Bunds reached their highest levels since the launch of the euro on Friday at 374 basis points.

The source said the larger reduction in Portugal’s budget deficit would be possible by suspending the building of a new international airport for Lisbon and the bridge over the Tagus River that would connect the city with the airport.

The center-right opposition Social Democrats, which have promised to support the minority Socialist government in parliament to clean up public finances, have pushed for the suspension of big public works plans due to the debt crisis.

The leader of the Social Democrats suggested last month that it was possible to cut the budget deficit to 7.3 percent of GDP by suspending public works plans.

The government has previously promised to reduce the budget deficit to 2.8 percent of GDP by 2013 through a pay freeze on civil servants, scrapping some tax exemptions and raising tax rates on the wealthy and on capital gains from stock investments.

Stocks

(Reporting by Axel Bugge; Editing by Jon Boyle)

Portugal promises EU to cut budget deficit more in 2010