Portugal’s Prime Minister Seeks New Areas for Spending Cuts

Portugal’s prime minister, Pedro Passos Coelho, has said a court ruling against parts of his government’s budget means it will have to make other deep spending cuts in areas such as social security, health, education and public enterprises. These would be needed if the country was to avoid applying for a second bailout.

The Portuguese Constitutional Court struck down more than €1bn of proposed savings that the right-of-centre government had said were needed to meet the terms of its existing bailout.

The European Commission (EC) warned after the ruling that Portugal must stick to its austerity programme as a precondition for any further assistance. “Any departure from the programme’s objectives, or their re-negotiation, would in fact neutralise the efforts already made and achieved by the Portuguese citizens,” a statement read.

Wolfgang Schaeuble, the German finance minister, has confirmed that Portugal must find alternative savings after the court ruling. “Portugal has made lots of progress in the last year to gain access to financial markets. But after this decision it will have to find new measures,” he said in an interview.

Passos Coelho said that the court veto “serious obstacles and risks” to Portugal’s progress in meeting its bailout commitments, but it would work to avoid the need for a further rescue. “The government is committed to all the objectives of the programme,” he said.

In a statement to the nation the prime minister repeatedly used the phrase “national emergency” to describe Portugal’s situation. He said the ruling striking down the budget’s suspension of holiday bonuses for public sector workers and pensioners, amounting to about 7% of their annual income, meant it must find alternative savings or seek a second bailout.

As tax increases were off the agenda after the unprecedented increases already in the budget, he said, the only option was to cut back on other public services. “Today, we are still not out of the financial emergency which placed us in this painful crisis,” Passos Coelho said.

“After this decision by the Constitutional Court, it’s not just the government’s life that will become more difficult, it is the life of the Portuguese that will become more difficult and make the success of our national economic recovery more problematic.”

Opposition leaders retorted that Passos Coelho is using the court ruling as an excuse to press ahead with cuts to public services that were already planned. They added that the government should resign, having lost credibility after two budgets in two years were ruled unconstitutional.

Together with Ireland, Portugal has recently received plaudits for pushing through painful austerity measures and had planned to issue a 10-year bond shortly to try to regain access to the debt markets, which could now be delayed after the court ruling.

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