CIP warns that Brussels' 'contractionist' policy cannot stop investment

Eurozone finance ministers warned earlier this week of a “contractionary” budgetary trend due to new EU economic governance rules. The CIP chief warns that despite the adjustment in public accounts, Portugal must invest more and create the conditions for economic growth. Armindo Monteiro believes that budget policy in the coming years must be designed in a way that reconciles public investment, reducing the tax burden on companies and households, and the sustainability of public finances.

“In a situation where we have a very significant reduction in public debt and good ratings, Portugal must invest in sustainability policies: more investment (public and private; PRR and PT2030, but also attracting investment) and creating the conditions for the growth of the economy,” defended Armindo Monteiro, president of the Portuguese Business Confederation (CIP), to JE newspaper.

The CIP warning comes after the final statement of eurozone finance ministers, who met earlier this week in Brussels to discuss the eurozone’s economic and budgetary situation, as well as the direction of budget policy for 2025. It is a common position adopted by the member states of the Eurogroup, whose guidelines take into account the new EU economic governance rules to control spending in the medium term, which require member states with public debt above 90% to reduce the ratio to an annual average of at least 1% of gross domestic product. GDP. Portugal will have to cut $2.8 billion annually with the new budget rules.

Armindo Monteiro also expresses his concern about the viability of OE2025: “I hope that each party sees the interest of the country, not just the sum of party gains. I hope that the operating organization becomes viable, allowing the country to attract predictability and investments.” The CIP leader here highlights that “there is fierce competition to attract investment and whoever has the advantages wins,” which could include competitive tax and energy policies, giving the example of reducing the IRC.

The Eurogroup recommends that the euro area pursue a “contractionary” policy with the withdrawal of energy support measures, arguing that gradual and sustainable fiscal consolidation in the euro area remains necessary in the future, given the need to reduce high levels of deficits and debt.

“At the same time, investment is expected to be maintained, unlike what happened after the financial crisis,” the finance ministers’ joint statement said. A concern shared by the CIP president, who, in statements to JE, highlighted that “public finance is not separate from the economy. The labor market is in fact a fundamental variable for the growth and sustainability of public accounts.

Fighting bureaucracy

There are positive signs, such as investment, but “the set of measures that have been announced is still a starting point,” adds Armindo Monteiro, stressing that bureaucracy must be “combated” which, he says, “hampers families and companies.” He focuses on administrative simplification, which he considers “absolutely fundamental.”

The CIP leader recalls the results of a recent study by the Bruegel Institute, a Belgian economic think tank, which highlights, he says, that “Portugal is one of the few countries that, under the current circumstances, needs to adapt”. It will be greater than it would have been with the old model. Armindo Monteiro highlights that governments now have to present fiscal adjustment plans over 4 or 7 years, and therefore, “it is very important to take these long forecast periods into account and prepare for them”.

Regarding investment, Armindo Monteiro points out that Portugal needs to “invest more in defence, and this should also push us to look at defence from a collective perspective, where companies can make a significant contribution.”

This challenge is also in the sights of the Montenegrin Executive by including it in a package of 60 measures to accelerate the economy by anticipating the launch of the Defense Economy Program. The objective: to strengthen the technological and industrial defense base in Portugal, enhancing the business sector's ability to access opportunities in the context of the current reinforcement of defense policies, by strengthening the participation and involvement of Portuguese companies in the procurement programs of European institutions and multilateral organizations and defense research, development and production consortia, thus boosting the orders for equipment and materials manufactured by the Armed Forces.

The Eurogroup considers that a move towards a “contractionary” policy in the member states’ budgets in 2025 is “appropriate in light of macroeconomic perspectives, the need to continue improving budget sustainability and supporting the current contractionary process”. Let us consider here that the “contractionary” trend creates the right conditions for “fiscal policies to address uncertainty”.

Improving the quality and composition of public spending

The “contractionary” budget path, according to the eurozone finance ministers, must be carried out in a way that “minimises the impact on growth, while continuing to increase productivity and maintaining or increasing investment”, which for the Eurogroup remains “essential for a competitive, dynamic and resilient economy”. In the joint statement, the eurozone’s portfolio holders stressed that they were “committed to intensifying efforts to improve the effectiveness, quality and composition of public spending”.

In this regard, the CIP president told JE magazine that the Eurogroup's warning “requires from the outset that we distinguish between what constitutes investment expenditure and this does not always happen with a focus on spending”, highlighting that in times of recession “it is more important to have investment, because that means having efficiency in current spending, which is essential to combat waste.

According to the Eurogroup, the conditions for a gradual acceleration of economic activity in 2024 and 2025 “remain in place in the euro area”. Based on the Commission’s spring forecasts, it highlights that consumption “is emerging as a key driver, supported by a further slowdown in inflation and a resilient labour market”. Investment is expected to benefit from improved credit conditions and the continued implementation of the Recovery and Resilience Mechanism (MRR), while taking into account that risks to the economic outlook “remain on the downside, in a still difficult external context”.

Eurogroup President Paschal Donohoe pointed out this week that there is a need for gradual and sustained fiscal consolidation in the euro area going forward. The process and we seek to minimize any negative impact on economic growth.

The Eurogroup also held an exchange of views on how to bridge the financing gap for the financial investments needed to boost the EU’s competitiveness, and invited Enrico Letta, President of the Jacques Delors Institute and author of the recent report on the future of the single market, to share his views on this topic.

Pascal Donohoe sees bridging the funding gap to meet the EU's investment needs as a “real challenge”, and says it is “absolutely essential” to accelerate all efforts related to the Capital Markets Union.