Portugal has difficulty in meeting its bail-out commitments
Lisbon is uncertain it can meet conditions of €78 billion bail-out
Portugal Prime Minister Pedro Passos Coelho says that the rejection posed "serious obstacles and risks" to Portugal's progress in meeting its bail-out commitments, but that it would "do everything to avoid a second rescue." The single currency bloc has already been destabilized by Cyprus and now faces fresh uncertainty if Lisbon cannot find new savings to meet the conditions of its €78 billion bail-out.
"The government is committed to all the objectives of the program," Portugal Prime Minister Pedro Passos Coelho said, adding that the ruling would mean other deep spending cuts, in social security, health, education and public enterprises.
"Any departure from the program's objectives, or their re-negotiation, would in fact neutralize the efforts already made and achieved by the Portuguese citizens," The European Commission warned in a statement.
German Finance Minister Wolfgang Schaeuble says that Portugal will have to find new savings after the ruling. "Portugal has made lots of progress in the last year to gain access to financial markets. But after this (constitutional court) decision it will have to find new measures," he told radio journalists.
The court ruled that the planned cuts in salaries to state workers and payments to pensioners were in breach of the constitution. The measures were expected to save as much as €1.3 billion annually, a large slice of the €5 billion of fiscal consolidation planned for this year. Coelho said that he had asked ministries to slash spending in order to avoid further tax rises.
"The constitutional court's decision places serious difficulties on the country to comply with the goals and budget targets it has to meet. The government doesn't agree with the interpretation of the constitution," Secretary of State for Cabinet Matters Luis Marques Guedes said.
Head of Economic Research at think-tank Open Europe Raoul Ruparel says that "With Cyprus and now Portugal, we are starting to see things worsening again in the eurozone."
Ruparel also warned there was a danger that broad support for austerity across the country could be eroded by the court's decision.
He added that the market reaction will probably be less severe than expected. "I can't imagine a massive response. They will find the savings elsewhere," he said.
The eurozone faces another testing week, with the formal terms of a €10 billion Cyprus bail-out due to be published. Ireland is also thought to be preparing to ask for an easing of its bail-out terms at a meeting of eurozone ministers in Dublin on Friday.
Portugal has been the eurozone's "poster child" for reform and had planned to issue a 10-year bond shortly to try to regain access to the debt markets. The court ruling may have delayed those plans.
© 2013, Distributed by NEWS CONSORTIUM.
Pope Francis Prayer Intentions for December 2013
General Intention: Victimized Children. That children who are victims of abandonment or violence may find the love and protection they need.
Missionary Intention: Prepare the Savior's Coming. That Christians, enlightened by the Word incarnate, may prepare humanity for the Savior's coming.
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