Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of Portugal[and delivering a Council opinionon the updated Stability Programme of Portugal, 2011-2014]
Date: 2011-06-07
Institutions: European Commission
Subjects: EU programme, Portugal, economic growth, financial aid, structural adjustment

EUROPEAN COMMISSION 

Brussels, 7.6.2011 
SEC(2011) 814 final 

Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Portugal 

[and delivering a Council opinion 

on the updated Stability Programme of Portugal, 2011-2014] 

{SEC(2011) 730 final} 

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Recommendation for a 

COUNCIL RECOMMENDATION 

on the National Reform Programme 2011 of Portugal 

[and delivering a Council opinion 

on the updated Stability Programme of Portugal, 2011-2014] 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies, and in particular Article 5(3) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

After consulting the Economic and Financial Committee, 

Whereas: 

(1) 

(2) 

On  26  March  2010,  the  European  Council  agreed  to  the  European  Commission's 
proposal  to  launch  a  new  strategy  for  jobs  and  growth,  Europe  2020,  based  on 
enhanced coordination of economic policies, which will focus on the key areas where 
action 
to  boost  Europe’s  potential  for  sustainable  growth  and 
competitiveness. 

is  needed 

On 13 July 2010, the Council adopted a recommendation on the broad guidelines for 
the economic policies of the Member States and the Union (2010 to 2014) and, on 21 
October  2010,  adopted  a  decision  on  guidelines  for  the  employment  policies  of  the 
Member States1, which together form the “integrated guidelines”. Member States were 
invited  to  take  the  integrated  guidelines  into  account  in  their  national  economic  and 
employment policies. 

(3) 

On  12  January  2011,  the  Commission  adopted  the  first  Annual  Growth  Survey, 
marking  the  start  of  a  new  cycle  of  economic  governance  in  the  EU  and  the  first 

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Maintained for 2011 by Council Decision 2011/308/EU of 19 May 2011. 

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(4) 

(5) 

(6) 

(7) 

(8) 

European semester of ex-ante and integrated policy coordination, which is anchored in 
the Europe 2020 strategy.  

On  25  March  2011,  the  European  Council  endorsed  the  priorities  for  fiscal 
consolidation  and  structural  reform  (in  line  with  the  Council’s  conclusions  of  15 
February and 7 March 2011 and further to the Commission’s Annual Growth Survey). 
It  underscored  the  need  to  give  priority  to  restoring  sound  budgets  and  fiscal 
sustainability,  reducing  unemployment  through  labour  market  reforms  and  making 
new efforts to enhance growth. It requested Member States to translate these priorities 
into  concrete measures to be included  in their Stability or Convergence Programmes 
and National Reform Programmes. 

On 25 March 2011, the European Council also invited the Member States participating 
in  the  Euro  Plus  Pact  to  present  their  commitments  in  time  to  be  included  in  their 
Stability  or  Convergence  Programmes  and  their  National  Reform  Programmes. 
Specific  commitments  and  actions  for  2011  are  not  explicitly  communicated  in  the 
Portuguese  National  Reform  Programme,  but  are  expected  to  be  submitted  to  the 
European Council.  

On 23 March 2011, the Portuguese government submitted a Stability Programme for 
2011-2014  to  the  national  parliament,  which  rejected  it.  On  19  April  2011,  the 
Portuguese  government  submitted  a  National  Reform  Programme.  The  proposed 
macroeconomic  and  fiscal  scenarios  and  the  policy  recommendations  have  been 
overtaken by the Memorandum of Understanding signed on 17 May 2011.  

On  17  May  2011,  the  Council  adopted  Decision  2011/0122  to  make  available  to 
Portugal  medium-term  financial  assistance  for  a  period  of  three  years  2011-2014  in 
accordance with Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a 
European  financial  stabilisation  mechanism.  The  accompanying  Memorandum  of 
Understanding  signed  on  the  same  day  and  its  successive  supplements  lay  down  the 
economic policy conditions on the basis of which the financial assistance is disbursed.  

In  2010,  Portugal's  GDP  grew  at  a  rate  of  1.3%.  This  positive  growth  rate  was, 
however,  largely  due  to  exceptional  factors  that  boosted  exports  and  private 
consumption.  Price  and  cost  developments  clearly  indicated  that  Portugal  was  not 
boosting competitiveness at a sufficiently fast rate to redress its current account deficit, 
which  was  high  at  10%  of  GDP  in  2010.  The  weak  overall  economy  and  the  steep 
increase in unemployment (11.2% at the end of 2010), spilled into large government 
deficits, which exceeded 10% of GDP in 2009 and 9% in 2010, up from 3.5% in 2008. 
As a result, Portugal has recently come under increasing pressure in financial markets, 
raising concerns about the sustainability of its public finances. Following consecutive 
downgradings  of  Portuguese  bonds  by  credit  rating  agencies,  the  country  became 
unable  to  refinance  itself  at  rates  compatible  with  long-term  fiscal  sustainability.  In 
parallel,  the  banking  sector,  which  is  heavily  dependent  on  external  financing, 
particularly within the euro area, was increasingly cut off from market funding. 

(9) 

Portugal  committed  to  implementing  the  economic  and  financial  adjustment 
programme  with  the  aim  of  restoring  confidence  in  its  sovereign  debt  and  in  the 
banking sector and supporting growth and employment. It provides for comprehensive 
action  on  three  fronts:  (i)  a  credible  and  balanced  fiscal  consolidation  strategy, 
supported  by  structural  fiscal  measures  and  better  fiscal  control;  (ii)  deep  and 

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frontloaded  structural  reforms  in  the  labour  and  product  markets;  and  (iii)  efforts  to 
safeguard  the  financial  sector  against  disorderly  deleveraging  through  market-based 
mechanisms supported by back-up facilities. 

(10)  The  Commission  has  assessed  the  National  Reform  Programme2.  It  has  taken  into 
account  not  only  its  relevance  for  sustainable  fiscal  and  socio-economic  policy  in 
Portugal  but  also  its  conformity  with  EU  rules  and  guidance,  given  the  need  to 
strengthen the overall economic governance of the European Union by providing EU 
level input into future national decisions. In this context, the Commission stresses the 
urgency  of  implementing  the  planned  measures  to  comply  with  Council  Decision 
2011/0122, 

HEREBY RECOMMENDS that Portugal should:  

Implement the measures as laid down in Council Decision [2011/0122] and further specified 
in the Memorandum of Understanding of 17 May 2011 and its subsequent supplements. 

Done at Brussels, 

For the Council 
The President 

2 

See SEC(2011) 730. 

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