BRUSSELS (Reuters) - The European Commission said on Wednesday that Portugal's draft budget for 2020 that envisages a small surplus was nevertheless at risk of breaking European Union fiscal rules because of insufficient progress in reducing its structural deficit.
The opinion is a blow to Portuguese Finance Minister Mario Centeno, who chairs the powerful Eurogroup of finance ministers - a body that participates in the oversight of fiscal policies in the 19 states of the euro zone.
In his first opinion on the budget of a euro zone government since he took office in December, EU economics commissioner Paolo Gentiloni took a harsh line, even though Portugal's debt is falling and it expects to run a budget surplus this year.
In a statement sent to Reuters, Portugal's Finance Ministry argued that the Commission's reading of the country's structural balance for 2020 was "close to the medium-term target and within the margin of tolerance" that it tends to concede.
"Portugal has a balanced budget, with an undeniable structural adjustment in all dimensions of public accounts," the ministry said. It added that the Commission's own recent forecast pointed to a "slight fiscal surplus of 0.1% of GDP in 2020", just below the government's surplus target of 0.2%.
Commission decisions over euro zone countries' budgets are taken together by Gentiloni and the EU executive's deputy vice-president, Valdis Dombrovskis.
The Commission said Lisbon should apply EU rules and balance its structural budget, which strips out one-off revenues and spending, and is expected to be in deficit in 2019 and in 2020.
That measure is closely watched by EU officials as it could help to further reduce Portugal's debt which, although dropping, is forecast to be around 116% of GDP.
Portugal updated its budget in December after an election in October that the ruling socialist party won.
The Commission had assessed the budgets of other euro zone countries in November. Eight of them were found to be at risk of breaking EU rules. Portugal was among them, but the final opinion on Lisbon's budget was contingent on the submission of an updated budget by the new government.
Gentiloni, a socialist former prime minister of Italy, took over from France's Pierre Moscovici as economics commissioner in December.
"The Commission is of the opinion that the updated Draft Budgetary Plan of Portugal is at risk of non-compliance with the provisions of the Stability and Growth Pact," the EU executive, which is the guardian of EU rules, said in its opinion.
It said Portugal's structural balance was at "risk of significant deviation from the required adjustment towards the medium-term budgetary objective in 2019 and 2020".
Euro zone countries that fail to meet EU fiscal targets can be fined, although this has never happened yet.
(Reporting by Francesco Guarascio and Jan Strupczewski in Brussels and Catarina Demony in Lisbon; Editing by Giles Elgood and Emelia Sithole-Matarise)