Portugal is at risk of “violating European rules on expenditure control” – and if this happens, it could end up back in what is called an ‘Excessive Deficit Procedure (EDP)’.
Very much as former Bank of Portugal governor Mário Centeno warned back in the summer, Portugal could face “a budgetary deviation greater than that permitted by European rules” this year.
At the time Centeno suggested this there was a fierce pushback by the government (which was intent on replacing him with a former PSD minister of economy, anyway).
But now projections released by Brussels in its Autumn Package point to a breach of the agreed limits for so-called ‘control account’ for expenditure, says Jornal de Negócios.
Under the new European budgetary framework, Member States commit to multi-annual expenditure variation trajectories, which cannot exceed 0.3% of GDP per year, with a maximum cumulative limit of 0.6%.
Portugal is among the countries expected to exceed these limits in the first year of the structural plans, with an estimated deviation of 0.7% of GDP in both 2025 and 2026.
If these figures are confirmed by the National Statistics Institute at the end of March 2026, the European Commission will be required to prepare a report under Article 126 of the Treaty on the Functioning of the European Union. This document is the first step in an in-depth analysis to verify whether the country complies with the debt criterion — mandatory for States with ratios above 60% of GDP — and may lead to the opening of a debt-based EDP – even in the absence of an excessive deficit.
The good news is that in its assessment of Portugal’s draft budget for 2026, Brussels did not identify any signs of indiscipline that would justify an immediate determination of non-compliance, says Negócios.
The Commission stressed that Portugal’s budgetary situation remains ‘close to balance’, estimating a deficit of (only) 0.3% of GDP in 2026.
The problem seems to be in what Negócios terms ‘cumulative deviation’, explained not only by the projection for 2025, but also by developments in 2024, already incorporated into the methodology.
In 2023, the trajectories for 2025-2028 were set, based on the budgetary performance forecast for 2024. But Portugal’s expenditure ended up being higher than expected (because the government was busy ‘fighting an election’ and promising possibly more than it should have been), resulting in a deviation of 0.5% of GDP, “which automatically carries over to the control account”.
Thus with the additional increase of 0.3% expected this year, the government could be in trouble, which might explain its general exasperation with the continuing pay demands and general dissatisfaction of various sectors.
Source: Negócios/ ZAP
