BRUSSELS (MNI) – European Central Bank President Jean-Claude
Trichet and European Commission President Jose Manuel Barroso issued a
joint statement Friday night lauding new deficit cutting measures
announced earlier in the day by the government of Portugal.

The joint statement came following a special summit of Eurozone
country leaders here tonight. The verbatim statement of Trichet and
Barroso follows:

“The Portuguese authorities have formulated in a “Note on policy
guidelines and measures that the Portuguese Government will adopt to
address main economic challenges” an ambitious policy response to
proceed with fiscal consolidation, address structural problems and
strengthen the financial system:

On fiscal policy, the announced measures underline the government
commitment to achieving the fiscal targets of a general government
deficit of 4.6 percent of GDP in 2011, 3 percent in 2012, and 2 percent
in 2013. The 2011 budget already contained substantial structural
consolidation measures of 5 percent of GDP for 2011. Estimates had shown
that under cautious macroeconomic assumptions a fiscal gap of 3/4
percent
of GDP remained. For 2012 and 2013, the gaps based on unchanged policies
amounted to 2 3/4 and 1 percent of GDP respectively. With today’s
announcement, the Portuguese authorities have committed to an additional
substantial package of measures which will allow to achieve the fiscal
targets.

The Portuguese authorities also commit to addressing the existing
vulnerabilities in the financial system. They acknowledge the need for a
reduction in the funding gap of the banking system through appropriate
de-leveraging. The need for strengthening bank capital is also
acknowledged and banks will be required to submit to Banco de Portugal
individual plans specifying timelines and pace of appropriate
de-leveraging and capital reinforcement. These plans shall be assessed
by the ECB and the European Commission, in line with respective
competencies. Recapitalisation needs, based on rigorous and timely
stress tests, are to be communicated as soon as possible to ensure that
the recapitalisation needs of the Portuguese banks are being
appropriately addressed.

In order to raise the growth potential and overall flexibility of
the Portuguese economy, the government has committed to a far-reaching
structural reform agenda which addresses growth bottlenecks and
structural rigidities. The commitment to concrete dates of the reform in
many areas is especially welcome.

Regarding labour market reforms, the actions announced are reducing
distortions and segmentation in the labour market. Further concrete
measures would be conducive to raising potential output growth. The
Portuguese government has rightly identified the inefficiencies in the
judicial system as an important impediment to economic activity and is
committed to implement substantial reforms. The announced measures to
improve the enforcement of competition rules should contribute to a more
competitive environment. Reforming the housing market as announced has
the potential of significant positive effects both on activity and
labour mobility, while limiting household indebtedness. In addition, the
government has committed to further reform efforts in the area of
energy, transport and services sectors.

We welcome and support the announced policy package. The
authorities should address any need for further specification of
measures, most notably with respect to labour markets, in the context of
the National Reform and Stability Programmes to be presented in April.
The present momentum should be maintained and the Portuguese authorities
should ensure full implementation of all measures. The policy follow-up
will be closely monitored by the European Commission, in liaison with
the ECB, in the context of enhanced surveillance.”

[TOPICS: M$$EC$,M$X$$$,M$$CR$,M$S$$$,M$$CR$,MT$$$$]