The European Commission approved Portugal's 2016 draft budget yesterday after the new Socialist government promised to hike indirect taxes to meet EU budget rules while also easing austerity to keep its leftist allies happy.

The decision by the commission will come as a relief to Portugal’s government, which was able to maintain most of its initial budget promises, such as hiking civil servants’ wages and raising the minimum wage, but had to lower its economic growth outlook.

The decision shows the EU executive is taking a softer line in applying its fiscal rules, as the euro zone economy struggles to revive. In the past year the commission has granted France, Italy and Spain budget leeway to spur growth.

Portugal presented its draft budget to the commission on January 22nd, but it breached EU budget rules. Lisbon then put together measures worth around €900 million, including more tax on petrol products, cigarettes, cars and property.

The new budget will now cut the deficit to 2.2 per cent of gross domestic product (GDP), from the original 2.6 per cent. Growth was also revised down, to 1.8 per cent from 2.1 per cent previously. – (Reuters)