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Portuguese Cabinet Approves ’Golden Rule’ on Deficits

Portugal’s government approved a proposal intended to enshrine limits on the country’s deficit and debt levels in law.

The move is in line with new European Union rules on budget procedures and is aimed at “protecting” Portugal’s public finances, Luis Marques Guedes, the secretary of state for the presidency of the council of ministers, said at a press conference in Lisbon today.

After a surge in debt and borrowing costs, Portugal followed Ireland and Greece in requesting emergency aid in 2011 from the EU and the International Monetary Fund. Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to comply with the terms of his country’s 78 billion-euro ($102 billion) bailout package.

The new EU rules aim to limit structural deficits to 0.5 percent of gross domestic product and total public debt to 60 percent of GDP. The Portuguese government forecast on Nov. 19 that debt would rise to 120 percent of GDP in 2012 before peaking at 122.3 percent in 2014. It was aiming for a deficit of 5 percent of GDP in 2012, narrowing to 4.5 percent in 2013.

The so-called “golden rule,” setting a budget deficit ceiling in law, still has to be approved by parliament, Guedes said.

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