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Europe
Portugal approves austerity budget
Budget plan includes cuts in public sector wages and pensions in effort to curb large deficit.
Last Modified: 26 Nov 2010 14:58 GMT
The spending cuts triggered what were the country's biggest strikes in two decades [EPA]

Portugal's parliament has approved its budget for next year, which will result in the government making drastic cuts in public spending to reduce the deficit.

The bill was passed comfortably on Friday after the main opposition Social Democratic Party abstained in the vote.

"Now that the budget has been approved we must immediately get to work to create the conditions necessary for it to be implemented," Teixeira dos Santos, the finance minister, said after the vote.

Jose Socrates, the prime minister, said in a brief statement after parliament approved the spending plan, that the country had "no alternative at all'' to the cuts.

"We must make this effort,'' he said.

Harsh measures

The budget aims to reduce the deficit from 7.3 per cent of the country's gross domestic product (GDP) to 4.6 per cent next year, requiring savings of around $6.85bn through a combination of spending cuts and tax hikes.

The spending cuts include a significant reduction in public sector wages, prompting anger from unions, who on Wednesday staged what was the country's biggest strike in two decades.

The deficit reached 9.3 per cent last year - the fourth highest in the eurozone after Greece, Ireland and
Spain.

Al Jazeera's Nazanine Moshiri, reporting from Lisbon, said that local residents will be hit hard.

"This is already one of Europe's poorest countries, and these spending cuts will impact greatly on the Portuguese," she said.

The Portuguese austerity measures carried a political cost for the minority Socialist government, which managed to pass the plan only after negotiating its content with the main opposition party.

All other parties voted against it, saying it would worsen hardship in a country that is among the continent's poorest, where the average wage is around $800 a month.

EU role

Portugal's high debt and low growth have alarmed investors, fueling speculation it may be the next European country to need a bailout, after Greece and Ireland.

But the government has repeatedly stated that it does not want or need international financial assistance of the kind provided to Greece in May - and currently being negotiated with Ireland.

However, analysts have said that in order for Spain, the fifth largest EU economy, to avoid problems, Portugal should accept a bailout earlier rather than later.

The European Commission, the European Central Bank and the German government have all denied they have asked Portugal to take financial aid, despite reports of pressure from various officials.

The Financial Times Deutschland quoted unidentified sources as saying some Eurozone states wanted Lisbon to seek aid.

"If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quoted a source in Germany's finance ministry as saying.

Jose Manuel Barroso, the president of the EU commission, dismissed the report as "absolutely false, completely false", saying an aid plan for Portugal had neither been requested nor suggested.

Source:
Al Jazeera and agencies
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