EconomyEurope

Portugal faces severe spending cuts

hedstrom20130408051136347The Portuguese government has called for severe cuts in public spending after a court rejected a number of austerity measures in the 2013 budget.

Portuguese Prime Minister Pedro Passos Coelho said in an address to the nation on Sunday that there would not be any new tax hikes in 2013. Measures would instead be taken to “contain public spending in the areas of social security, health and education.”

The prime minister did not elaborate in detail how the government was planning to slash public spending.

One-point-two billion euros in savings where lost from the 2013 budget after Portugal’s Constitutional Court decided the planned cuts were unconstitutional.

The rejected measures included cutting an extra month’s summer pay for civil servants and pensioners as well as reducing unemployment benefits and sick leaves.

Furthermore, Coelho said Portugal’s position was now “more fragile” than before the ruling, since it could harm negotiations with the European Union for an extension on deadlines to reimburse the country’s loans.

Also on Sunday, the European Commission warned Portugal that it should implement its austerity measures as part of a European bailout deal or risk the curtailment of future aid.

Portugal is seeking to cut four billion euros (about $5.2 billion) in public spending by 2015 in an attempt to recover its economy, after its borrowing costs soared to unsustainable levels in 2011.

The main opposition party — the Socialists — has accused Prime Minister Coelho’s government of applying austerity at any cost and plunging millions of Portuguese into poverty, while failing to meet growth and deficit targets.

Portugal is grappling with its worst recession since the 1970s. The country is bracing for a record 18.2-percent unemployment rate in 2013, up from the 16.9 percent in 2012.

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