LISBON (MNI) – Portugal’s public deficit for 2010, which the
government has put at 6.9% of GDP, is likely to be higher than 8%, the
Portuguese daily Diario Economico reported Wednesday.

The paper said that the European Union’s statistical agency,
Eurostat, is questioning the Portuguese government’s 2010 accounts and
is in talks with Portugal’s statistics institute INE to rectify the
figures.

At the center of Eurostat’s doubts are costs for public transport
companies and for Banco Portugues de Negocios, which was nationalized.
The newspaper noted that the deficit would surpass 8%, despite the
transfer to the government last year of Portugal Telecom’s pension fund,
which was expected to help balance the books.

The government is expected to acknowledge that it did not meet its
deficit objective in the first year of its program, the paper said.

A Eurostat spokesman declined to comment on the report, but
acknowledged that the agency is currently discussing “specific national
issues” with each of the EU member states, in preparation for
publication of the “spring notification” on April 26.

Meanwhile, debate has begun this afternoon in Portugal’s parliament
on an updated austerity program widely expected to be defeated by the
opposition parties, which collectively hold more seats than Lisbon’s
ruling minority government. Few members of the government are in
evidence at the debate right now. Prime Minister Jose Socrates left the
parliamentary session shortly after the debate started.

Socrates has threatened to resign if the bill, strongly endorsed by
the European Commission and the European Central Bank, is defeated. He
has an audience with Portugal’s President Anival Cavaco Silva at 1900
GMT/1500 EDT this evening, and it is widely believed that Socrates will
submit his resignation if the vote has gone against him.

In that event, he would still attend the summit of EU leaders
starting tomorrow in Brussels, but he would show up empty-handed rather
than with the package of new austerity measures for which he won
plaudits at a meeting of Eurozone leaders on March 11.

Portuguese Finance Minister Fernando Teixeira dos Santos, defending
the additional cuts on the floor of parliament moments ago, acknowledged
that “we are going to ask for more sacrifices from the Portuguese
people.”

It is widely expected that a defeat of the government’s proposed
new austerity measures would put almost irresistible pressure on Lisbon
to seek aid from the European Financial Stability Facility and the
International Monetary Fund.

Portuguese bonds have been under heavy pressure in recent sessions.
The 10-year Portuguese benchmark yield traded at 8.03% in late afternoon
trading, up sharply from 7.4% on Tuesday. The spread versus German Bunds
was 15 basis points wider today, at +440 basis points, after hitting a
session high of +441 basis points. The all-time record high is +483
basis points on November 11 of last year.

The government in Lisbon has said that a 10-year yield above 7%
would make borrowing in the financial markets unsustainable.

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