Punishing Portugal for missing its eurozone deficit target would send the wrong message to the rest of Europe about whether it's worthwhile asking the population to make sacrifices, said Portuguese Economy Minister Manuel Caldeira Cabral.

Once the poster child for austerity, endorsed by German Chancellor Angela Merkel who visited the then center-right prime minister Pedro Passos Coelho in 2012 to show her support, Portugal has switched track in seven months of Socialist leadership.

Prime Minister António Costa has tried to raise consumer spending, while boosting the minimum wage and reintroducing four public holidays scrapped by his predecessor. Costa came second to Passos Coelho in last October's elections but formed an alliance with the Left Bloc, the Communists and the Greens to oust the conservatives.

Lisbon risks fines from the European Commission for exceeding the eurozone budget deficit target of no more than 3 percent of economic output. In May, Portugal and neighboring Spain — their deficits are 5.1 and 4.4 percent of GDP respectively — got an extra year to reach their targets, mainly to avoid the prospect of sanctions influencing Spain's elections on June 26.

However, Brussels is keeping up the pressure, with Eurogroup President Jeroen Dijsselbloem saying Tuesday he was worried about the credibility of the “guardians of the [stability and growth] pact” being undermined by a permissive approach to targets.

Caldeira Cabral discussed Portugal's economic performance with members of the Commission during a visit to Brussels this week, and sat down with POLITICO afterwards to discuss his country's policy shift.

POLITICO: Why shouldn't the European Commission sanction Portugal?

What is being evaluated are the last three years — the policies of the former government. There is now consensus that it applied too many austerity measures and the results didn't turn out as well as expected. But that was the result of a policy aligned with what was then European Commission policy. Are we going to sanction Portugal for applying the exact formula it was told to by the European Commission? ... It would be an extremely wrong, unfair decision, because the country made sacrifices during those years. It would be counter-productive too, because the Commission would be sending a signal to the rest of the EU that a country that makes an effort and does exactly what the European institutions say, can still be sanctioned because maybe the results were not as good as expected.

The European Commission should focus more on the real problems existing in Europe and the real solutions, which will come via a real policy for growth, innovation and science to put Europe back in a leadership position. We presented these policies today to the European commissioners, who were very interested to know more about the innovation policies the Portuguese government is setting out regarding capitalization, support for the private sector of the economy, and what we're doing to adapt to the challenges and opportunities of Industry 4.0.

Portugal is rolling back austerity and Italy wants to: Is the German austerity era over?

When a business has to adjust to a crisis, it can recalibrate by lowering salaries and firing workers. In a country or in the EU, when all businesses do that, what happens is that each business is laying off another country's consumers. That's the difference between microeconomics and macroeconomics. When we lose sight of consistent macroeconomic policy, we lose the sense that the policies of a country, or of an integrated economy like the eurozone, must differ from mere accounting policies.

On the other hand, a country is also different from a business. The first thing a business has to do is to choose its employees wisely. The last thing a country should do is favor some citizens and relegate others. A country needs to work with all its citizens and offer them growth opportunities.

Are you trying to reverse the previous government's austerity policies?

The intention is to go beyond the extraordinary measures that were put in practice during the bailout program. These measures were needed to tackle an extraordinary situation, some of them implemented for three years, others for four years. Our own constitutional court — Portugal is a state of law — allowed them to be applied as extraordinary measures. They were supposed to end when the adjustment program was over. The new government is making an effort — is committed to ending them. But that doesn't mean that there is no consolidation: Our public deficit situation got better in the first three months of the year already, with a partial recovery of salaries. We are not reversing or questioning the budget consolidation policy, but we are trying to reduce indebtedness without a deterioration of social rights.

What would be the consequences of Brexit for Portugal and Europe?

Portugal is England’s oldest ally, the two countries actually have the oldest trade treaty in the world, and Portugal and the U.K. will maintain that treaty and alliance and remain close to each other. I studied and did my PhD in England, lived there for six years ... and this important alliance between Portugal and England is very dear to me.

What Portugal and the U.K. have in common is that they're both Atlantic countries. An EU without the U.K. would be less complete and less Atlantic-facing, and that would be negative for all Europe. In European negotiations, the U.K. has always had a pragmatic role, critical of certain advances by the EU and useful in correcting excesses in some other dimensions, such as excessive regulation. ... But in the end it's a decision for the British people which we must all — in the U.K. and EU — respect.

After six months in government with the support of the Left Bloc and Communists, what advice would you give Spain's Socialists for after their elections on June 26?

I think Spain needs to find its own solution, and it looks like it'll have to find a solution in a parliament where no party will have a majority. In Portugal’s case, the agreement we reached was positive ... It allowed the government to fulfill much of what was promised in the election campaign within six months. So we still have 3-1/2 years to develop other policies, which were also in the manifesto.

This interview was edited for length and clarity.