Portuguese parties united in aiming for goal of EMU

Date: 03/10/1996

By Eva Gaspar

NOBODY expects any big surprises next week when the Portuguese government unveils its budget plans for 1997. Nor is the package likely to spark major social tensions.

Lisbon's goal of fulfilling the Maastricht Treaty criteria so that Portugal can be among the first wave of single currency members is one which enjoys widespread national support.

Finance Minister António Sousa Franco insists it is worth making every effort to join the Euro club in 1999, as this is the only way to ensure that Portugal has a place at the decision-making centre of the EU.

That argument is supported by the country's main opposition party, the Social Democrats, who have already announced that they will abstain when the budget is put to the vote.

In fact, the single currency has become a sort of national flag around which everyone is rallying. According to one opinion poll published last week, a majority of Portuguese are ready to make sacrifices to enable the Escudo to join economic and monetary union from the very beginning.

The Socialist government led by António Guterres is not expected, however, to increase the tax burden until at least the end of next year, relying instead on growth forecasts of 2.75&percent; to 3.25&percent; in 1997, well above the European average, to help maintain the level of fiscal receipts.

But that alone will not be enough to bring the public deficit down from the 4.1&percent; of Gross Domestic Product expected by the end of this year to the target level of 2.9&percent; in 1997. Current public expenditure will, therefore, be frozen, although public investment will still be allowed to grow by 7&percent; next year.

This confirms that the major role in boosting the economy will continue to be played by the public sector, while private investment remains stagnant.

The government's privatisation programme and cuts in interest rates will be the key factors determining the evolution of Portugal's debt ratio. For the first time in decades, it is expected that public debt will decline this year, albeit only slightly, and the government is forecasting that it will fall even further - to 68&percent; of GDP - in 1997. That will still be higher than the 60&percent; limit laid down in the Maastricht criteria, but Lisbon is confident that a flexible interpretation of the rules will allow Portugal to pass this exam.

The government also expects to win the fight against inflation, with prices anticipated to rise by under 2.5&percent; in the next 12 months. But significant improvements in the unemployment situation are not expected next year, although the government insists that once in the single currency, the Portuguese labour market will become much more dynamic.

“The EMU was an answer to the rise in unemployment that Europe has been experiencing since the Sixties. The ones who do not understand this, do not understand anything at all,” said Sousa Franco last week.