On 11 February, eurozone finance ministers met in Brussels for a session of the Eurogroup. The most interesting point on the agenda was Portuguese budgetary plan for 2016. Portugal held general elections late last year and although the then center-right prime minister won, a left-wing anti-austerity government was formed by the former opposition. The new government´s 2016 budget, modelled on the anti-austerity paradigm, was widely expected to run into trouble in Brussels. And really, the European Commission did not like the first draft and there was a serious possibility that it would formally ask Portugal to revise it – a humiliating and very strict step. However, the Portuguese government proposed some additional adjustments, after which the EC approved the plan. The final word is with the Eurogroup, however. Last week, the eurozone finance ministers in the end did not object to the Portuguese budget plan, but indicated that there is a risk of non-compliance with the eurozone fiscal rules. The reason is that Portugal uses a more optimistic economic outlook for this year than the EC.
Although it is politically difficult for the leftist government to continue with the reforms passed by its conservative predecessor, it has little choice. Apart from peer pressure in the eurozone, the financial markets are again nervous. Government bonds yields have grown recently and there is serious risk that the last rating agency giving Portugal a non-junk rating would downgrade it. This step would force the ECB to stop buying Portuguese bonds – which would put the financial market into a period of renewed uncertainty.
The ministers also discussed the economic outlook for the eurozone economy. According to the EC, GDP growth is expected to be 1.7% this year and 1.9% in 2017. Unemployment is expected to fall from 11% in 2015 to 10.2% in 2017.
The following day (12 February), Eurostat released its economic data for Q4 2015. The eurozone grew by 0.3% compared to the previous quarter. This was due to slow growth in Germany (0.3%) and Italy (0.1%) and to recession in Greece (-0.6%). Year-on-year, the eurozone GDP expanded by 1.5%, the number for the entire EU being 1.8%.
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