Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision 2011/344/EU on granting Union financial assistance to Portugal
Date: 2012-12-06
Institutions: European Commission
Subjects: Community loan, Portugal, budget deficit, financial institution, financial planning, gross domestic product, public debt, public expenditure, stability programme, structural adjustment

EUROPEAN 
COMMISSION 

Brussels, 6.12.2012  
COM(2012) 757 final 

2012/0352 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2011/344/EU on granting Union financial assistance to 
Portugal 

EN 

   EN 

 
 
 
 
  
 
EXPLANATORY MEMORANDUM 

Upon a request by Portugal, the Council granted financial assistance to Portugal on 17 May 
2011  (Council  Implementing  Decision  2011/344/EU)  in  support  of  a  strong  economic  and 
reform  programme  aiming  at  restoring  confidence,  enabling  the  return  of  the  economy  to 
sustainable growth, and safeguarding financial stability in Portugal, the euro area and the EU.  

In line with Article 3(10) of Decision 2011/344/EU, the Commission, together with the IMF 
and  in  liaison  with  the  ECB,  has  conducted  the  sixth  review  to  assess  the  progress  on  the 
implementation of the agreed measures as well as their effectiveness and economic and social 
impact.  

Taking  into  account  the  recent  economic,  fiscal  and  financial  developments  and  policy 
actions,  the  Commission  considers  that  some  changes  to  the  economic  policy  conditions 
underpinning the assistance are necessary to secure the programme's objectives, as explained 
in the recitals of the proposed amendments to the Council implementing Decision.  

EN 

2 

   EN 

 
2012/0352 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision 2011/344/EU on granting Union financial assistance to 
Portugal 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union, 

Having regard to Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European 
financial stabilisation mechanism1, and in particular Article 3(2) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

(4) 

In line with Article 3(10) of Council Implementing Decision 2011/344/EU, the Commission, 
together  with  the  International  Monetary  Fund  (IMF)  and  in  liaison  with  the  European 
Central  Bank  (ECB),  has  conducted  the  sixth  review  of  the  authorities'  progress  on  the 
implementation  of  the  agreed  measures  as  well  as  of  the  effectiveness  and  economic  and 
social impact of the agreed measures. 

After  a  strong  decline  of  3%  in  2012  in  real  terms,  economic  activity  is  expected  to 
gradually recover starting from the second half of 2013 with quarterly growth rates returning 
to positive territory. Looking forward, the economic recovery is expected to gather pace in 
2014  despite  some  headwinds  from  domestic  consumption.  Risks  to  the  macroeconomic 
outlook are tilted to the downside. In particular, a stronger-than-expected deterioration of the 
economic climate in some euro area countries would have spill-over effects on Portugal.  

The  5%  of  GDP  budget  deficit  target  for 2012  remains  valid,  even  though  there  are  some 
risks.  While  the  budgetary  execution  on  the  expenditure  side  remains  under  control, 
revenues  until  October  continue  to  fall  short  of  already  downward  revised  targets. 
Additional saving measures worth around 0.3% of GDP are being implemented to meet the 
deficit  target,  but  there  are  some  uncertainties  with  regard  to  their  final  yield.  Finally,  the 
statistical  authorities  are  still  assessing  whether  the  sale  of  the  airport  concession  (ANA), 
estimated at 0.7% of GDP, can be treated as a deficit-reducing operation. 

The 2013 budget law, which was adopted on 27 November, includes discretionary measures 
of  more  than  3%  of  GDP  to  achieve  the  deficit  target  of  4½%  of  GDP  in  2013.  On  the 
expenditure  side,  the  budget  envisages  a  sizeable  reduction  in  the  public  sector  wage  bill 
through  lower  employment  coupled  with  a  reduction  in  overtime  payments  and  other 
compensations. Rationalisation efforts in the health sector, State Owned Enterprises (SOEs), 
Public-Private-Partnerships  (PPPs)  will  be  deepened,  while  social  spending  will  be  further 

1 

OJ L 118, 12.5.2010, p. 1. 

EN 

3 

   EN 

 
                                                 
streamlined.  On  the  revenue  side,  the  budget  foresees  a  comprehensive  reform  of  the 
Personal Income Tax (PIT) that will reduce the number of brackets and increase the average 
tax  rate  in  line  with  European  standards,  while  preserving  progressivity  and  curbing  tax 
benefits. In addition, a surcharge of 3.5% is imposed on the part of taxable income above the 
minimum wage and a solidarity surcharge of 2.5% on the income of the top tax bracket and 
of  5%  on  income  above  EUR  250  000.  Corporate  tax  revenues  are  increased  by  means  of 
limiting  the  deductibility  of  interest  costs,  reducing  the  threshold  for  applying  the  highest 
rate  on  profits  and  changing  the  methodology  for  special  prepayment  to  companies  under 
group taxation, among others. The budget also includes changes in indirect taxation, notably 
an increase in excise taxes on tobacco, alcohol and natural gas, a broadening of the base of 
property  taxation  after  revaluation  of  properties  and  the  creation  of  a  financial  transaction 
tax. In addition, social contributions will rise as they will be also charged on supplementary 
payments for public employees and on unemployment benefits.  

Taking into account the measures in the budget, revenue increases will contribute by 80 % 
to  the  fiscal  adjustment  in  2013  while  the  remaining  20%  will  come  from  expenditure 
reductions (after considering the effect of the reinstatement of the 13th salary in the public 
sector  and  1.1  monthly  pensions,  following  the  decision  of  the  Constitutional  Court).  In 
view of the risks associated with the strongly revenue-based adjustment, the authorities are 
preparing contingency measures amounting to 0.5% of GDP which will be activated if risks 
materialise.  The  measures  will  mainly  consist  of  expenditure  savings,  notably  further 
reductions in payroll costs, and will be further specified in early 2013 in time for the seventh 
review.  

The  budgetary  adjustment  process  is  underpinned  by  a  range  of  structural  measures  to 
enhance control over government expenditure and improve revenue collection. In particular, 
a comprehensive reform of the budgetary framework is foreseen to bring it in line with best 
practices in budgetary procedures and management. The new commitment control system is 
starting  to  show  results  but  implementation  needs  to  be  monitored  closely  to  ensure  that 
commitments  are  in  line  with  funding.  Reforms  in  the  public  administration,  which  have 
already produced significant savings, will continue. Key reforms to restructure the revenue 
administration  are  close  to  completion  and  the  authorities  are  enhancing  monitoring  and 
strengthening  revenue  compliance.  The  renegotiation  of  PPPs  has  started  and  significant 
savings  are  projected  for  2013  and  beyond.  State-owned  enterprises  are  expected  to  reach 
operational balance on average by the end of the year. Reforms in the health care sector are 
producing significant savings and implementation is continuing broadly in line with targets. 

A  comprehensive  expenditure  review  has  been  initiated  with  the  objective  to  enhance  the 
efficiency and equity of public services, while generating spending savings of about EUR 4 
billion or 2.5% of GDP. The exercise aims at reducing redundancies across the public sector 
functions  and  entities,  and  reallocating  resources  toward  growth-friendly  spending  areas. 
The identification, quantification and timetable of implementation of the measures should be 
specified by February 2013. The 2013 Stability Programme will provide further information 
on the medium-term fiscal consolidation plan.  

Under  the  Commission's  current  projections  for  nominal  GDP  growth  (-1.0 %  in  2011, 
-2.3% in 2012, 0.3% in 2013 and 2% in 2014) and the fiscal targets of 5% of GDP in 2012, 
4½%  in  2013  and  2½%  in  2014,  the  debt-to-GDP  ratio  is  expected  to  develop  as  follows: 
108.1% in 2011, 120% in 2012, 122.2% in 2013 and 122.3% in 2014. The debt-to-GDP ratio 
would level off from 2012 onwards and be placed on a downward path after 2014, assuming 
further progress in the reduction of the deficit. Debt dynamics are affected by several below-
the-line  operations,  including  sizeable  acquisitions  of  financial  assets,  notably  for  possible 

(5) 

(6) 

(7) 

(8) 

EN 

4 

   EN 

 
bank  recapitalisation  and  financing  to  state-owned  enterprises  and  differences  between 
accrued and cash interest payments.  

(9) 

The  capital  augmentation  exercise  amounting  to  EUR  8.2  billion  is  nearly  completed  and 
will  allow  the  participant  banks  to  meet  the  EBA  regulatory  capital  buffers  as  well  as  the 
end-of-year 10% Core Tier 1 program target. The indicative loan-to-deposit target of 120% 
by 2014 will likely be met with some banks already below the threshold at this stage. Efforts 
to diversify the sources of funding for the corporate sector are being strengthened. The legal 
acts  on  bank  resolution  including  recovery  plans,  bridge  banks  and  a  resolution  fund  are 
being finalised.  

(10)  Further  progress  has  been  made  in  implementing  growth  and  competitiveness  enhancing 
structural reforms. In addition to strengthening active labour market policies, the authorities 
are committed to reducing severance payments to promote labour market flexibility and job 
creation.  The  implementation  of  the  action  plans  on  secondary  school  and  vocational 
training is overall progressing as scheduled. 

(11)  The  transposition  of  the  Services  Directive  aiming  at  reducing  barriers  to  entry  and  boost 
competition  and  economic  activity  by  facilitating  access  for  new  entrants  to  the  market  in 
the different economic regimes is proceeding at good pace. Licensing procedures and other 
administrative  burdens  are  also  being  simplified  in  different  economic  sectors  such  as 
environment  and  territorial  planning,  agriculture  and  rural  development,  industry,  or 
geology.  A  Framework  Law  to  set  the  main  principles  of  the  functioning  of  the  most 
important  National  Regulator  Authorities  (NRA),  including  their  endowment  with  strong 
independence and autonomy, is under preparation.  

(12)  Reforms  of  the  judicial  system  continue  to  advance  according  to  the  agreed  schedule. 
Further progress has been achieved on the reduction of backlog cases and broader reforms 
such as the geographical reorganisation of the court districts and the reform of the Code of 
Civil Procedure. 

(13)  Each measure required by this Decision is instrumental in re-establishing a sound economic 
and  financial  situation  in  Portugal  and  to  restoring  its  capacity  to  finance  itself  on  the 
markets, 

HAS ADOPTED THIS DECISION:  

Article 1 

Article 3 of Implementing Decision 2011/344/EU is amended as follows: 

(1) 

paragraph 7 is replaced by the following: 

'7.  Portugal  shall  adopt  the  following  measures  during  2013,  in  line  with  specifications  in  the 
Memorandum of Understanding: 

(a) 

the  general  government  deficit  shall  not  exceed  4½%  of  GDP  in  2013.  The  2013  budget 
shall include permanent consolidation measures of at least 3% of GDP aiming at reducing 
the  general  government  deficit  within  the  timeframe  referred  to  in  paragraph  3.  The 
Portuguese Government shall explore ways to increase the weight of expediture reduction 
in  the  overall  consolidation  package  for  2013  in  order  to  ensure  a  medium-term 
growth-friendly  fiscal  adjustment  tilted  towards  the  expenditure  side.  Given  budgetary 

EN 

5 

   EN 

 
(b) 

(c) 

(d) 

(e) 

(f) 

(g) 

(h) 

(i) 

(j) 

(k) 

(l) 

(m) 

(n) 

execution risks the Portuguese Government shall prepare contingency measures of 0.5% of 
GDP by early 2013 which should be activated in case of a materilasation of such risks; 

the 2013 budget shall include revenue-raising measures, notably a reform of the personal 
income  tax  that  simplifies  the  tax  structure,  a  broadening  of  the  tax  base  through  the 
elimination  of  some  tax  benefits  and  increases  of  the  average  tax  rate,  while  preserving 
progressivity; a broadening of the corporate income tax base; an increase in the investment 
income tax rate; an increase in excise taxes and changes in recurrent property taxation; 

the  2013  budget  shall  include  expenditure-saving  measures,  notably  a  rationalisation  of 
public  administration,  education,  health  care  and  social  benefits;  a  reduction  of  the  wage 
bill  by  decreasing  permanent  and  temporary  staff  and  reducing  overtime  pay;  a 
streamlining of public and private social transfers and subsidies; a reduction in transfers to 
local  and  regional  authorities;  and  a  lowering  of  operational  and  capital  expenditures  by 
SOEs; 

Portugal shall continue implementing its privatisation programme; 

Portugal  shall  develop  common  revenue  forecasting  guidelines  for  subnational 
governments; 

Portugal shall deepen the use of shared services in public administration; 

Portugal  shall  reduce  the  number  of  local  branches  of  line  ministries  (e.g.  tax,  social 
security,  justice)  by  merging  them  in  citizens'  shops  and  developing  further  the  e-
administration over the duration of the programme; 

Portugal  shall  continue  the  reorganisation  and  rationalisation  of  the  hospital  network 
joint 
through  specialisation,  concentration  and  downsizing  of  hospital  services, 
management  and  joint  operation  of  hospitals.  Finalise  the  implementation  of  the  action 
plan by the end of 2013; 

With  the  support  of  internationally-reputed  experts  and  following  the  adoption  of  the 
amendments  to  the  New  Urban  Lease  Act  Law  6/2006  and  the  Decree  Law  which 
simplifies  the  administrative  procedure  for  renovation,  Portugal  shall  undertake  a 
comprehensive review of the functioning of the housing market; 

Portugal  shall  develop  a  nationwide  land  registration  system  to  allow  a  more  equal 
distribution of benefits and costs in the execution of urban planning; 

Portugal shall make fully operational the management tool to analyse, monitor and assess 
the  results  and  impacts  of  education  and  training  policies  and  shall  establish  the 
professional schools of reference; 

Portugal shall complete the adoption of the outstanding sectorial amendments necessary to 
fully implement the Services Directive; 

Portugal shall implement targeted measures to achieve steady reduction of the backlogged 
enforcement cases in view of resolving the backlog of court cases; 

Portugal  shall  adopt  the  Framework  Law  on  the  main  National  Regulator  Authorities  in 
order  to  guarantee  their  full  independence  and  financial,  administrative  and  management 
autonomy; 

EN 

6 

   EN 

 
(o) 

(p) 

(q) 

(r) 

Portugal  shall  improve  the  business  environment  by  completing  pending  reforms  on  the 
reduction of administrative burden [Point of Single Contact (PSC) foreseen by the Services 
Directive  and  'Zero  Authorisation'  projects]  and  by  carrying  out  further  simplification  of 
existing licensing procedures, regulations and other administrative burdens in the economy 
which are a major obstacle for the development of economic activities; 

Portugal shall complete the reform of the port work legislation and the ports' governance 
system, including the overhaul of port operation concessions; 

Portugal shall implement the measures enhancing the functioning of the transport system; 

Portugal  shall  implement  the  measures  eliminating  the  energy  tariff  debt  and  fully 
transpose the Third EU Energy Package.' 

__________________________ 

* OJ L 376, 27.12.2006, p. 36. 

** OJ L 255, 30.9.2005, p. 1. 

*** OJ L 48, 23.2.2011, p. 1. 

(2) 

paragraph 9 is replaced by the following: 

'9. With a view to restoring confidence in the financial sector, Portugal shall adequately recapitalise 
its  banking  sector  and  ensure  an  orderly  deleveraging  process.  In  that  regard,  Portugal  shall 
implement  the  strategy  for  the  Portuguese  banking  sector  agreed  with  the  Commission,  the  ECB 
and the IMF so that financial stability is preserved. In particular, Portugal shall: 

(a) 

(b) 

(c) 

(d) 

(e) 

advise banks to strengthen their collateral buffers on a sustainable basis; 

ensure a balanced and orderly deleveraging of the banking sector, which remains critical in 
permanently  eliminating  funding  imbalances.  Banks'  funding  plans  aim  at  reducing  the 
loan-to-deposit  ratio  to  an  indicative  value  of  approximately  120%  in  2014  and  reducing 
the  reliance  on  Eurosystem  funding  in  the  medium-term.  Those  funding  plans  shall  be 
reviewed quarterly; 

encourage  the  diversification  of  financing  alternatives  for  the  corporate  sector  and  in 
particular the SMEs through an array of measures aiming at improving their access to the 
capital markets and export credit insurance; 

continue to streamline the state-owned CGD group; 

optimise  the  process  for  recovering  the  assets  transferred  from  BPN  to  the  three  state-
owned special purpose vehicles through the outsourcing to a professional third party of the 
management of the assets, with a mandate to gradually recover the assets over time. The 
Portuguese Government shall select the party managing the credits through a competitive 
bidding process and include adequate incentives to maximise the recoveries and minimise 
operational  costs  into  the  mandate.  The  Portuguese  Government  shall  ensure  timely 
disposal  of  the  subsidiaries  and  the  assets  in  the  other  two  state-owned  special  purpose 
vehicles; 

(f) 

on  the  basis  of  the  set  of  preliminary  proposals  to  encourage  the  diversification  of 
financing  alternatives  to  the  corporate  sector presented,  develop and  implement solutions 

EN 

7 

   EN 

 
that  provide financing  alternatives to traditional bank credit for the corporate sector. The 
Portuguese  Government  shall  assess  the  effectiveness  of  government-sponsored  export 
credit insurance schemes with a view to taking appropriate measures compatible with EU 
law to promote exports; 

ensure  the  initial  and  periodical  funding  arrangements  for  the  Resolution  Fund  in  two 
steps,  first  by  the  approval  of  a  decree-law  on  the  banks'  contributions  to  the  Resolution 
Fund,  and  secondly  by  the  approval  of  a  supervisory  notice  on  the  specific  periodic 
contributions  by  banks;  adopt  the  supervisory  notices  on  the  resolution  plans.  The 
implementation  of  the  recovery  and  resolution  plans  of  the  banks  shall  give  priority  to 
those that are of systemic importance; 

implement  the  framework  for  financial  institutions  to  engage  in  out-of-court  debt 
restructuring for households, smoothen the application for restructuring of corporate debt 
and implement an action plan to raise public awareness of the restructuring tools; 

submit  to  Parliament  amendments  to  the  legal  framework  governing  access  to  public 
capital to allow the State, under strict circumstances and in accordance with state aid rules, 
to exercise control over an institution and to perform mandatory recapitalisations.' 

(g) 

(h) 

(i) 

This Decision is addressed to Portugal.  

Article 2 

Article 3 

This Decision shall be published in the Official Journal of the European Union. 

Done at Brussels,  

For the Council 
The President 

EN 

8 

   EN