Market to focus next on Portugal's new economic and fiscal programme

Portugal's new government has not yet presented its economic programme and the 2016 draft budget, which is expected in the coming days. This will be a critical test, as markets will assess Portugal's ability to deliver sound public finances and economic reforms that can support growth and help the deleveraging of the public and private sectors. 

The socialist party is widely viewed as profoundly European and it will strive to deliver policies that are in compliance with all the European treaties, including the fiscal compact. In fact, Mr. Costa has already expressed a firm intention to take Portugal out of the Excessive Deficit Procedure. 

However, it is not yet clear how some of the socialist party proposals such as the enhanced public expenditures (eg on public sector wages and pensions) and possible changes to some taxes (eg, reduced VAT rates for some items) can help to achieve a deficit below 3%.