Portugal forced into welfare cuts
Court rejects state austerity measures
PORTUGUESE Prime Minister Pedro Passos Coelho said last night the government would have to make big cuts in spending on health, education and social security to maintain the country’s €78bn bail-out programme, after the constitutional court rejected austerity measures considered essential to meeting mandatory deficit targets.
In a televised address, the prime minister said the ruling posed a serious risk to Lisbon’s ability to comply with the adjustment programme and its effort to regain access to international bond markets by September.
To compensate for the effect of the decision on the national accounts, he had no alternative but to make additional spending cuts that would have a significant effect on the welfare state, he said. The budgets of state-owned firms would also be cut, but he ruled out further tax hikes on top of record hikes introduced in January.
“I have ordered ministries to cut expenditure to compensate for the effects of the court decision.”
His decision to cut spending on welfare is likely to intensify opposition pressure on the government to resign, opening the way for an early general election.
Mr Passos Coelho also faces a difficult task in convincing international lenders that new spending cuts will keep deficit-reduction plans on target.
“We have to do everything possible to avoid a second bailout,” he said.
A government official said another response could be a “large government stimulus package” aimed at lifting growth in an economy mired in its third consecutive year of recession.
Economists said international lenders — which have already given Lisbon two extra years to consolidate its public finances — would be reluctant to make significant concessions in view of the tougher line on fiscal issues taken by Germany and the Netherlands over the Cyprus bail-out. Financial Times