March 25, 2019 / 5:39 PM / a month ago

UPDATE 1-Euro zone budget tool to start with fewer resources than desired-Centeno

(Updates with details throughout)

By Sergio Goncalves and Catarina Demony

LISBON, March 25 (Reuters) - Eurogroup head Mario Centeno said on Monday that a new budget instrument to promote reforms and investment in the euro zone will start with fewer resources than hoped for but will end up becoming a crucial tool for the bloc.

Describing it as a “new avenue of integration”, Centeno told a conference the tool’s key strands will be defined by June by the Eurogroup - finance ministers of the euro zone - and it will then be framed in the EU’s budget.

The new tool will set aside funds to support reforms and convergence between economies and to help investments in countries facing temporary economic shocks.

“We will certainly start with resources below what some would like but I believe that, over time, this tool will become central to the euro zone, making it more cohesive, inclusive and attractive to the rest of the EU,” Centeno said.

In December 2018 the euro zone agreed on a new credit line to finance bank resolutions as well as a preventive credit tool. But Centeno said there is still a lot of work to do in the euro zone, especially around risk reduction.

“We cannot neglect the need for risk reduction at national level,” Centeno said, pointing to fiscal improvements.

“At the end of 2018, there was no country in the euro zone with an excessive deficit,” Centeno said. “The euro zone’s fiscal position is close to reaching a balance.”

Centeno, Portugal’s finance minister, said that in his country, for the first time in 20 years, “economic discussion no longer revolves around deficit”.

Portugal’s 2018 deficit will be announced on Tuesday. Centeno estimated it to be around 0.6 percent of gross domestic product (GDP), 0.1 percent lower than the 0.7 pct initially forecasted by the government.

The government forecasts a deficit of 0.2 percent of GDP in 2019. (Reporting by Sérgio Gonçalves and Catarina Demony Editing by Axel Bugge and Frances Kerry)

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