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Portugal PM issues bailout warning

Pedro Passos Coelho says his country faces deep public spending cuts after court rejects eurozone budget measures.

Last Modified: 08 Apr 2013 01:18
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Portugal's prime minister has announced severe cuts in public spending following a decision by the constitutional court rejecting a number of austerity provisions in this year's budget.

Pedro Passos Coelho said that he respected but disagreed with a decision by Portugal's highest court to reject its proposed austerity measure - saying it would have consequences for the entire country and threaten the nation's position in the eurozone.

The constitutional court's decision deprives the government of about $1.7bn of expected revenue.

In an address to the nation, Coelho said there would be no new tax hikes in 2013 but that measures would be taken to "contain public spending in the areas of social security, health and education".

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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.

Portuguese economist, Camilo Lourenco, told Al Jazeera that now the president's two remaining options are to "raise taxes, and I think that would deepen the recession, or borrow more money from the international markets".

"This would be an awful solution. The correct solution is further measures to cut public spending, and it is the option favoured by the government but it is also risky because it might not make up the necessary revenue."

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.

For its part the European Commission late on Sunday warned Portugal that it must respect all of the objectives of the aid programme.

"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 5.3bn euros in savings in a bid to haul the embattled eurozone country out of the crisis.

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Source:
Al Jazeera And Agencies
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