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Portugal won’t let rising defence spending eat up a hard-won funds surplus, its finance minister mentioned, because it resists runaway funding to re-arm Europe following Russia’s invasion of Ukraine.
Joaquim Miranda Sarmento, finance minister in a authorities dealing with elections in Might, advised the Monetary Occasions that defence spending should not threaten Portugal’s fiscal surplus or add to the nation’s debt burden. However he insisted it nonetheless had room to satisfy larger Nato expenditure targets, as US President Donald Trump pressures Europe to pay extra for its safety.
“With real GDP growth of around 2 per cent, the defence spending increase will always be limited by maintaining a small fiscal surplus,” mentioned Sarmento.
Lisbon, an Atlantic-facing EU capital furthest from Kyiv, doesn’t really feel the identical stress to extend its army spending as nations nearer to Ukraine. Poland’s defence funds, for instance, is nearly 5 per cent of GDP, the best amongst Nato allies.
In contrast, Portugal is seventh from backside in Nato’s rating, having spent simply 1.6 per cent of GDP on defence final yr. It has pledged to achieve Nato’s 2 per cent objective by 2029. However Nato leaders at a summit in June are set to lift that concentrate on to a minimum of 3 per cent of GDP. Trump has floated 5 per cent as a greater objective.
Portugal’s fiscal rectitude stems from years of painful austerity measures linked to an IMF and EU bailout it acquired 2011. Lisbon is likely one of the few EU capitals with a funds surplus — equal to €2bn or 0.7 per cent of GDP in 2024 — its second largest in share phrases in a minimum of 50 years. The finance minister predicted a surplus of 0.3 per cent in 2025.
Sarmento mentioned sustaining a funds surplus was important to lowering Portugal’s public debt, which stood at 95.3 per cent of GDP on the finish of 2024. “We need to go to 80 per cent, or even below 80 per cent, by the end of the decade,” he mentioned.
Underneath the EU’s fiscal guidelines, nations have to hold public debt beneath 60 per cent of GDP, however the requirement was suspended in the course of the Covid-19 pandemic and is now being relaxed to permit for elevated defence spending.
A surplus would additionally present a buffer in order that “if bad economic times arrive in the next years we will be prepared to face them”, Sarmento added.
Fiscal conservatism is bipartisan in Portugal and never up for debate in upcoming parliamentary elections.
However different nations are throwing off the fiscal shackles. Friedrich Merz, Germany’s chancellor-in-waiting, has struck a deal to loosen up the nation’s strict fiscal guidelines and lift limitless debt to fund its armed forces and army help to Ukraine.
Prime Minister Mette Frederiksen of Denmark — which additionally has a funds surplus together with Eire and Cyprus — has urged European leaders to “spend, spend, spend on defence and deterrence”.
Portugal’s inhabitants is extra hawkish than different southern European nations. In a Eurobarometer survey final yr, 84 per cent of Portuguese supported EU financing of army gear for Ukraine, versus 55 per cent of Spaniards and 48 per cent of Italians.
Sarmento mentioned Portugal was able to do extra. “The fiscal position of Portugal, combined with flexibility on the EU fiscal rules, will give us a more room to manoeuvre, more space, to increase defence spending in a faster way,” he mentioned.
The Portuguese authorities was “most likely” concerned about utilizing funds from a €150bn mortgage programme for member states to funnel to their defence industries, the minister mentioned. However Lisbon wished first to see the phrases and the way borrowing prices in contrast with Portugal’s personal choices within the sovereign debt market.
The yield on 10-year Portuguese authorities bonds is presently 3.25 per cent, decrease than France, Italy and Spain — an indication Portugal is seen as a much less dangerous borrower. The yield on 10-year German bonds is 2.73 per cent.
On spending priorities, Sarmento mentioned it was very important that EU members co-ordinated to nurture specialised industries in every nation. Portugal already had robust shipbuilders and the plane maker Ogma, which is owned by Brazil’s Embraer. The Portuguese firm Tekever, in the meantime, has provided drones to Ukraine.
Polls counsel the minister’s centre-right Democratic Alliance is in a good election race in opposition to the opposition Socialists with a excessive likelihood that neither will have the ability to kind a steady parliamentary majority.
