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LISBON: European Parliament President Martin Schulz criticised the IMF yesterday for demanding more austerity in Portugal while acknowledging that too much budget rigour can undermine badly-needed economic growth.
Schulz pointed to a report on Portugal released this week by the International Monetary Fund in which the Fund suggested that the government should reduce the number of civil servants and cut their pay and pensions to save ¤4.0bn ($5.3bn).
“I take note about the report of the IMF but I (also) take note of the observations from the same IMF” early in December, Schulz said after meeting Portuguese opposition leader Jose Seguro.
Both Schulz, who is German, and Seguro belong to their respective country’s Socialist parties.
Referring again to the IMF, Schulz noted: “Some days ago they said the recipe was wrong and now they come with the old recipe they considered was wrong.”
The EU Parliament head was apparently referring to comments by IMF chief economist Olivier Blanchard that were broadcast by the US public radio NPR on December 6.
Blanchard told NPR that austerity measures, often known as “fiscal consolidation, which has happened in Europe much more actually than in the US so far, has had a major impact on growth,” owing in large part to cuts in government stimulus spending and higher taxes.
Schulz told media in Lisbon yesterday: “My proposal to the IMF is to agree first of all internally about what they think is the good way” for countries to resolve their debt problems.
After meeting with Portuguese Prime Minister Pedro Passos Coelho, Schulz addressed journalists in German, saying: “Portugal is on the right path after the huge sacrifices that the country has made.”
Coelho downplayed the importance afforded to IMF comments, saying: “This report will be neither our Bible nor our finish line.
“Some of the proposed solutions will be taken into account, others not,” the Portuguese premier added without providing details.
In May 2011, the IMF and the European Union approved a bailout package for Portugal worth ¤78bn, in exchange for which the government adopted radical and highly unpopular measures to cut spending, raise taxes and reform the economy. Lisbon wants to reduce the Portuguese public deficit to 5.0 percent of output in 2012 and to 4.5 percent in 2013.
EU member countries are not supposed to run deficits which exceed 3.0 percent of gross domestic product (GDP), and are expected to reduce them to zero and move into surplus in times of economic growth.
The Portuguese economy has been shrinking since 2011 however, and the government, the IMF and the EU expect the economy to contract by another 1.0 percent this year, while the bank of Portugal has forecast that it will shrink by 1.6 percent.