Portuguese Prime Minister Pedro Passos Coelho on Sunday announced severe cuts in public spending following a decision by the constitutional court rejecting a number of austerity provisions this year’s budget.
In an address to the nation, Coelho said there would be no new tax hikes this year but that measures would be taken to “contain public spending in the areas of social security, health and education”.
On Friday the court ruled that several measures in the budget were unlawful, including the scrapping of a 14th month of salary for civil servants and retirees, as well as cuts to unemployment and sickness benefits.
The government condemned the decision, which will see it lose out on about 1.2 billion euros (HK$12 billion) in savings, saying it would make it difficult to achieve the budget cuts needed to meet the terms of a 78-million-euro European Union-International Monetary Fund bailout.
Portugal’s position is now “more fragile” than before, Coelho said on Sunday and could harm its intention to negotiate with the EU an extension on deadlines to reimburse its loans.
But it was out of the question to request another bailout, Coelho said, adding that “the government will respect all of the objectives of the aid programme”.
For its part the European Commission late on Sunday warned Portugal that it must do just that.
“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,” the commission said in a statement.
The 2013 austerity budget, approved by parliament last year, was expected to bring Portugal 5.3 billion euros in savings in a bid to haul the embattled euro zone country out of the crisis.