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EU says pension changes assist Portugal deficit

PORTUGAL – The European Commission is not going to take any immediate action against Portugal over its excessive budget deficit – in part because of recent changes to the country’s pensions system.

“The European Commission considers that Portugal is on track to correct its excessive deficit by 2008 as recommended by the Council in September 2005, provided it strictly implements the 2006 budget and pursues a rigorous budgetary consolidation strategy in 2007 and following years,” the Commission said.

“At present it does not appear necessary to recommend any further steps under the excessive deficit procedure.”

Positive measures included the stepped phasing out of the civil servants’ pension scheme and its integration into the less generous general regime.

"Portugal has adopted a comprehensive and courageous package of measures since mid-2005 to reduce its excessive deficit, but there remain significant risks and uncertainties, especially as some important measures have yet to be implemented,” said Economic and Monetary Affairs Commissioner Joaquín Almunia.

“The consolidation efforts need to be stepped up, particularly on the expenditure side to put the public finances back on a firm and sound ground as a pre-condition for more and stronger economic growth and for the creation of jobs.”

The phasing-out of the civil service scheme has been accelerated by stepwise increases, from 2006 until 2015, in the statutory retirement age and eligibility periods, as well as a change to the benefit formula, the Commission said.

In addition, the retirement rules for some categories of government employees have been tightened. And in the general pension scheme, conditions for early retirement have been made less favourable.

The Council decided in September last year that an excessive deficit existed in Portugal and recommended the government to take measures before 19 March 2006.

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