Source: FT article: https://www.ft.com/content/f787e5c0-3eda-11e7-82b6-896b95f30f58
Portugal’s recovery from the eurozone’s debt crisis reached a milestone on Monday as the EU said the country, which needed an international bailout, was no longer in breach of the bloc’s budget rules. Brussels’ verdict underlines Portugal’s turnround after its rescue by eurozone governments and the International Monetary Fund in 2011 and reflects the improving economic environment for the single currency area, where growth has picked up and unemployment is at an eight-year low. The European Commission on Monday said Portugal’s budget deficit fell to 2 per cent of gross domestic product in 2016, well below the limit of 3 per cent set out in its budget rules and the lowest since the country joined the eurozone in 1999. Brussels expects the deficit to stay roughly the same until the end of its forecast in 2018. “It is really a very good and a very important, piece of news for Portugal, for the Portuguese economy, for the Portuguese people,” said Pierre Moscovici, the EU’s commissioner for economic affairs. He said the country had suffered “what was by any measure, a major crisis”. Portugal’s finance ministry said the decision showed “confidence in the Portuguese economy is now spreading to international institutions”. Only three eurozone members — France, Spain and Greece — remain in the “corrective” part of the EU’s stability and growth pact rules, compared with 24 countries at the height of the continent’s crisis six years ago. Countries must make progress towards bringing budget deficits to below 3 per cent of GDP and reducing debt to 60 per cent of GDP. Related article Portugal buoyed by Eurovision win, faith and football Revellers share blessed relief from a decade of recession and austerity Greece is poised to leave the corrective procedure at the end of its bailout next year, the commission said. Valdis Dombrovskis, the EU commission vice-president responsible for the euro, said trends were “overall positive and we should use this window of opportunity to make European economies more competitive, resilient and innovative”. Brussels warned that recovery was “uneven and still vulnerable”, highlighting bad loans clogging up the eurozone’s banking system and imbalances between different countries’ competitiveness and economic performance. The commission’s recommendation that Portugal be allowed to exit the euro area’s “excessive deficit procedure” was one of a number of so-called country-specific recommendations. Finland, which has suffered the worst downturn in the eurozone outside the southern member states, was given more time to meet targets as its government plans a series of major economic reforms to the its pensions and labour market. Croatia, a non-eurozone state, will also exit the “excessive deficit procedure” along with Portugal. Portuguese prime Minister António Costa’s “anti-austerity” government has confounded critics by cutting the deficit to its lowest level in more than 40 years, with the country benefiting from a brightening world economy and the European Central Bank’s two-year stimulus experiment. Growth in the first quarter was 1 per cent higher than in the previous quarter, raising expectations that growth will exceed the government’s forecast of 1.8 per cent in 2017 — the best in seven years. Mr Costa wants credit rating agencies to lift Portugal’s rating above “junk” status, which would cut its borrowing costs further. Only DBRS, a small Canadian rating agency, rates Portuguese debt as investment grade. Moody’s said last week that it would only consider a move to investment grade should the government make further strides to bring down the deficit. Portugal’s debt-to-GDP ratio remains above 130 per cent, the joint highest in the eurozone after Greece. Private sector debt, as measured in households and companies, is also high at 172 per cent of GDP. Although the jobless rate has fallen just below 10 per cent, average unemployment over the past three years, a measure of economic health used by the EU, remains at 12.8 per cent, above the minimum recommended level of 10 per cent. Portugal’s fragile banking sector also troubles investors and the EU. Average profits fell 7 per cent last year, the second worst performance in the EU after Italy, while non-performing loans accounted for almost a fifth of total lending.