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EU to Tighten Budget Rules

The European Union's top economy official says the bloc is tightening its budget rules to prevent future crises like the one hitting Greece, even as new concerns are raised that Portugal could be the next worry.

EU Commissioner Olli Rehn said he would publish recommendations next month on ways to toughen budget rules for the16-nation Euro Zone that has been roiled by the Greek economic crisis.

"The latest developments in the European economy in the euro area, not least in and around Greece, have clearly shown that there is an ... urgent need to reinforce economic policy coordination and ... surveillance in the euro area, in the European Union as well," he said.

Rehn spoke just days after the European Union threw Athens a $40-billion lifeline in the form of low-interest loans, should it need it.

But London School of Economics Professor Iain Begg says the European Union does not need new budget rules, but simply to enforce the ones it has.

"The rules themselves probably do not need much reform. It is mostly in the implementation, which has been rather poor over the last four or five years before the crisis broke, with many countries too ready not to follow the prescribed rules," he said.

Other shaky European economies have sparked fears that Greece's crisis might spread. A new report by the European Commission, the EU executive arm, raised concerns about Portugal. Last month, Portugal's credit rating was downgraded by Fitch Ratings.

Commissioner Rehn said Libson's economic growth forecasts are optimistic. But analyst Begg says Portugal's situation is different than that of Greece in two key respects.

"One is that Portugal has not been breaking the [EU budget] rules for many years to the extent that the Greeks have. And second, Portugal is less vulnerable to the aggregate scale of its public debt, as opposed to its deficit, because it is nowhere near as high as the Greek debt," he said.

Among other things, the EU report calls on Lisbon to improve education and training and to open up parts of its economy like the energy and telecommunications sectors to more competition.