Portugal Parliament Approves Regional Finance Law

Portugal's budget deficit is about to get a whole lot worse. A proposed Law of Regional Finances, which was approved yesterday by a parliamentary committee, which would increase funds sent to Portugal's Madeira and Azores regions by €50 million, and keep rising until it hits €86 million by 2013, was just ratified into law by the Portuguese parliament. This is precisely what the Finance Minister had been dreading. From Dow Jones previously:

However, the minority government of Socialist Prime Minister Jose Socrates will do everything in its power to oppose the implementation of the law if it is passed, Finance Minister Fernando Teixeira dos Santos said late Thursday.

"I want to make it clear that, from 2010 through 2013, I will oppose the measure, using all the legal and political instruments available to me, in order to maintain the goals contained in the budget plan," the finance minister said in a statement.

Since Greece admitted late last year its budget deficit was much higher than previously thought, investor concern has been mounting towards it and other countries with spiraling budget deficits, such as Spain and Portugal.

Portugal's budget deficit will be equivalent to 8.3% of gross domestic product this year, after rising to 9.3% of GDP last year, according to the budget agreement reached last week by the government and some of the opposition parties.

As the EU has given Portugal until 2013 to cut its spending gap to 3% of GDP, such initiatives that see increased spending will be increasingly frowned upon by not only EU commissioners, but by CDS traders, and certainly would take away from the rhetorical ammo of the Portuguese administration which will have ever fewer arguments to prove that "all is well."

Comments

[TraderMark]

Here is a chart of all European countries by fiscal deficit as % of GDP crossed with debt as % of GDP

http://www.fundmymutualfund.com/2010/02/sovereign-risk-chart-where-would-us-fit.html

it shows the US , would be the 2nd worst of the PIIGS, trailing only Greece

thank gosh for the printing press

[BobPaulson]

I like how your graph shows how those pesky socialist Scandinavians have the lowest Debt/GDP and the lowest percent deficit (not including Iceland and Norway which would provide two extremes in both directions).

[Trifecta Man]

Maybe Portugal can make the money back by selling Credit Default Swaps?

[Anonymous]

Yes, and that evil Health Care too.

Just think if we could use the funds that we threw down the rabbit hole at AIG et al for some good.

[Bam_Man]

"We're not broke, we've still got checks left!"

(Lifted from Germany's wallet, of course)

[bugs_]

Perhaps the US Navy would be interested in
purchasing some of these island regionals.

[alexdg]

This news is totally taken out of context. The Socialist party that is in government last year approved over 140 million in extra spending for Madeira. But once there were regional elections and the region voted in once again the Social Democrat party for their autonomous region government the "continental" government decided to get back to their "politics" agenda. The truth is that this extra budget will only add 0.03% to the current 2010 deficit. Which even is peanuts compared to all the erroneous spend going on in 2009 and on the agenda for 2010 as "public investment". Currently Portugal is undergoing the launchof projects such as High Speed train system (from the french TGV) account for over 10 billion euros. Even though all studies have shown that the project is totally disasterous compared to highways, current rail system, low-cost flights; not to mention the spainish example of TGV with has been losing an average 500 million euros per year since launch. The list can go on and on. The Socialist party is running out of solutions and have a hard time keeping face to the clowning around they did with the 2009 deficit: in past October they said it would be 5.9%, later on they accounted for 8.3% and now they claim it's 9.4% so they can enhance the UE and ECB that the 2010 budget will have a lower deficit coming in at 8.4%). Many believe the Government is using this "regional finance law" as an excuse to blame the rest of the oposition that as a Government they can't rule and basically abandon office.