Merkel Prods Portugal to Stay the Course on Budget Discipline

  • ECB policy means `very good conditions' for economic overhaul
  • Germany to help maintain ``positive'' environment in euro area

German Chancellor Angela Merkel said Portugal’s government should take advantage of favorable conditions created by the European Central Bank as well as low energy prices to overhaul its economy.

Speaking alongside Portuguese Prime Minister Antonio Costa after talks at the chancellery in Berlin, Merkel said it’s important for Portugal to stay within the framework of solid fiscal policy, though it was up to the European Commission to rule on the government’s 2016 draft budget. Costa, a Socialist who took office in November, says the spending plan turns the page on austerity, the policy championed by Merkel to stem the euro area’s debt crisis.

“I think it’s important for Portugal to be able to continue on its path of more growth, more jobs and solid finances,” Merkel said Friday. The euro region needs “more economic cohesion, but not at the expense of competitiveness but to improve competitiveness.”

Merkel’s comments amount to a warning as Costa plans to undo some measures introduced during Portugal’s bailout by the European Union and the International Monetary Fund. He intends to reverse state salary cuts and bolster family incomes, easing austerity measures faster than the previous administration proposed.

Costa said he’s presenting a “responsible budget” for 2016, as the European Commission prepared to deliver its opinion later Friday.

‘Constrained’ Outlook

Portugal has regained the confidence of foreign investors, “growth prospects remain constrained by high levels of indebtedness and structural bottlenecks,” the IMF said in a statement Thursday on the country’s progress since exiting its bailout.

Merkel said Germany will make its contribution to maintaining a “positive” environment in the euro region that helps create confidence. The ECB’s monetary policy has created “very good conditions” and low oil prices are helping economic recovery, she said.

Costa has said he can ease austerity measures faster than the previous administration proposed and still keep the budget deficit within the EU limit of 3 percent of gross domestic product through 2019.

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