Portugal’s prime minister says the government will have to cut spending on health, education and social security to keep the country’s €78bn bailout programme on track.
Portugal’s worsening problems threaten to reignite the eurozone’s financial crisis not long after Cyprus became the fifth member of the 17-nation bloc to require rescue.
The Portuguese economy contracted 3.2 percent last year and is forecast to shrink 2.3 percent in 2013 for a third straight year of recession. The unemployment rate, currently at a record 17.5 percent, is forecast to climb to 18.5 percent in 2014.
European leaders have for three years struggled to contain the financial crisis, and Portugal’s ongoing problems illustrate the dilemma of finding a balance between austerity measures and growth policies. Many Europeans want to abandon the austerity path and start spending again to create jobs and wealth.
Pedro Passos Coelho made a televised address on Sunday after the constitutional court rejected austerity measures considered essential to meeting mandatory deficit targets. The premier said the court’s rejection of planned austerity measures posed a serious risk to Lisbon’s ability to comply with the adjustment programme and its effort to regain access to international bond markets by a September deadline.
Mr Passos Coelho said he had no alternative after the court decision but to make extra spending cuts that would have a significant impact on the welfare state. The budgets of state-owned companies would also be cut, he said but the premier ruled out more tax rises on top of record increases introduced in January.