News Column

Portugal Announces Even More Austerity

May 3, 2013

Portugal announced a new round of austerity measures Friday to keep its bailout programme on track after the European Commission revised downward the country's economic forecasts.

The measures will save 4.8 billion euros (6.3 billion dollars) by 2015, Prime Minister Pedro Passos Coelho said.

The measures include eliminating 30,000 of Portugal's 580,000 public-sector jobs. Public employees work week hours will be extended from 35 to 40 hours, and their social security contributions raised.

Spending by government ministers will be trimmed by 10 per cent.

Passos Coelho announced a new tax on all but the lowest pensions and an increase of retirement age from 65 to 66 years.

Portugal's gross domestic product was expected to shrink 2.3 per cent in 2013 and grow 0.6 per cent the following year, the European Commission said in its spring economic forecast for the eurozone.

In February, the commission forecast a contraction of 1.9 per cent for this year and a growth rate of 0.8 per cent for 2014.

Critics blame the austerity policies for the recession, in which unemployment has topped 17 per cent.

The austerity measures were agreed in 2011 with the European Union and the International Monetary Fund in return for a bailout for Lisbon worth 78 billion euros.

The policies have been successful in lowering Portugal's borrowing costs. Interest rates continued going down Friday with the yield for benchmark 10-year bonds at 5.5 per cent, its lowest level since October 2010.

Analysts attributed the development partly to a decision Thursday by the European Central Bank to cut interest rates to a historic low of 0.5 per cent.

The Portuguese government earlier announced budget cuts worth 1.3 billion euros for this year in sectors including health and education.

The cuts would address a budget shortfall created by the Constitutional Court, which struck down four earlier cost-cutting measures.

Portugal is trying to slash its budget deficit from 6.4 per cent of its gross domestic product in 2012 to 5.5 per cent this year, to secure the disbursement of its next loan tranche from the EU and IMF.

The government is trying to counter mounting anti-austerity protests by preparing measures to boost employment, such as tax incentives and cheap business loans.

For more stories covering business, please see HispanicBusiness' Business Channel

Source: Copyright 2013 dpa Deutsche Presse-Agentur GmbH

Story Tools Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters