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."