EU grants Portugal budget reprieve

Brussels has granted Lisbon three years to reign in Portugal's burgeoning budget deficit - expected to reach 6.2 per cent this year - over double the limit set by EU fiscal rules.

The European Commission agreed on Wednesday to allow Portugal until 2008 bring the deficit to within the three per cent threshold set by the EU's Stability and Growth pact - the rules which underpin the euro.

"Bringing public finances back on a sound footing is an urgent necessity for the Portugese authorities," said EU finance chief Joaquin Almunia.

"A necessity in its own right, in order to raise the economy's potential growth and its ability to create jobs - not just something that has to be done because of 'Brussels' and the Stability and Growth Pact."

The commission recommended that Portugal limits the deficit this year to 6.2 per cent of GDP, and act "rigourously" to bring it's balance books into line - currently the highest debt in the 12 member eurozone.

Lisbon has been advised by Brussels to reduce the debt by 1.5 in 2006 followed by an additional 0.75 in 2007 and 2008.

But Portugal is not the only eurozone country to break the EU fiscal rules. Last week Italy was given until 2007 to push it's 4.3 per cent deficit under the three per cent limit.

EU finance ministers are expected to back the recommendations for Portugal at their first meeting after the summer.

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