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25th Jun 2018

Anti-austerity Portuguese PM warns of financial crisis risks

Portugal's prime minister Antonio Costa told the European Parliament on Wednesday (14 March) that the future stability of the single currency remains at risk.

Speaking to a half empty chamber, the socialist prime minister warned against complacency in addressing what he described as structural weaknesses in the eurozone.

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"As long as the economic and monetary union is still incomplete, there will still be a risk of further crises," he said.

His speech is part of a series of debates on the future Europe and aimed to present Portugal in a new light, as a country that managed to exit from the depths of a 2008 financial crisis with both renewed growth and a strong social policy.

"In Portugal, we devised an alternative to the austerity policy, focusing on higher growth, more and better jobs, and greater equality," he said.

The measures imposed at the time by the then-conservative government had slapped additional taxes on incomes and cut benefits and pensions, given the conditions of a €78bn bailout from the European Union and the International Monetary Fund.

Those initial results saw education, health and social security plummet as poverty increased and unemployment reached new heights. Many such measures were later reversed by the Costa government in 2015, which then saw a rise in economic growth.

"The rise in earnings made economic operators more confident resulting in the fastest economic growth since the beginning of the century," said Costa.

Last week, the European Commission removed Portugal from the list of countries with serious macro-economic imbalances.

Last year, the country exited the so-called excessive deficit procedure. It means Portugal has reined in public debt and managed a budget deficit that no longer misses the EU three-percent target of gross domestic product.

"Who would have believed this a couple of years ago?" said EU commission president Jean-Claude Juncker, speaking after Costa.

Juncker said the employment rate in Portugal continues to increase as a result, in part, of huge efforts by the Portuguese.

But Costa also issued warnings and pressed for greater convergence, a term that broadly describes the process behind better European economic integration. It includes, among other things, the completing of the internal market and economic and monetary union.

"We cannot continue to perceive the eurozone just as a group of economies that compete with each other and the rest of the world. We have to view it as an integrated space," he said.

Costa also pressed his case for a bigger European Union budget and said Portugal was prepared to put in more contributions. But budget hawks such as Austria, Denmark, Netherlands and Sweden are likely to reject his views.

The issue is part of a larger debate triggered by the UK referendum vote to leave the European Union, followed by a 2016 Bratislava declaration where national leaders pledged their loyalty to the Union.

It also feeds into last year's paper from Juncker that sets out five scenarios for the future of Europe ahead of the European Parliament elections in 2019.

Costa's address to the parliament was the third by a EU leader in a series on the subject. In April, it will be French president Emmanuel Macron's turn to lay out his vision.

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