• Lisbon: The EU commission is pleased with the government's austerity measures (Photo: Valentina Pop)

EU 'surprised' by Portugal's unemployment rate

03.04.12 @ 19:04

  1. By Valentina Pop
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BRUSSELS - The EU commission on Tuesday (3 April) praised Portugal for its austerity measures and said unemployment benefits had to be further cut even though the percentage of jobless people was "surprisingly" higher than expected.

"The budgetary adjustment is currently on track and it is likely for the Eurogroup to say yes to the fourth disbursement (of bail-out money)," said Peter Weiss, an EU commission official part of the 'troika' of international lenders overseeing the reform process in Lisbon.

"Overall compliance with the programme is very good," he said, noting that the Portuguese government has implemented 110 out of the required 130 measures attached to a €78 billion loan granted last year. The money is being paid out in tranches of some €15 billion each, if troika inspectors say Portugal is on track and eurozone finance ministers (Eurogroup) agree.

Weiss said that Lisbon's budget cutting measures - amounting to 7.5 percent of the gross domestic product in only two years - was "enormous and very ambitious" and that there was nothing left for the government to do outside this programme in order to regain market confidence.

But because of strong trade relations with Spain, whose economic outlook is worsening and because markets are hard to predict, Portugal may still face troubles ahead, he warned.

Its government should be able to borrow directly from the markets in 2013, but its borrowing costs remain much higher than Ireland's, considered the A student among bailed-out eurozone countries.

However, Weiss strongly rejected the idea that Portugal may need a second bail-out like Greece. The only 'adjustment' that could be considered later this year is an Irish-inspired bond repayment scheme allowing the government to postpone the deadline of when it has to pay in cash.

'Surprising' unemployment

The EU commission remains convinced that the harsh austerity measures will eventually bring Portugal back to economic growth.

Eurostat figures released on Monday, however, showed that 15 percent of Portugal's labour force was officially unemployed in February, one percent higher than what the troika had reckoned with. And over 35 percent of Portuguese under 25 years of age were unemployed, an increase of almost ten percentage points compared to the same period last year.

"We have seen the figures and were a bit surprised by the rapid rise in the last quarter. We still have a bit of difficulty in interpreting the figures, it may be that seasonal factors were not taken into account properly," Weiss said.

He also speculated that people may have been laid off in bigger waves in the past few months, as labour reforms are kicking in, cutting back some of the redundancy benefits.

The centre-right government led by Pedro Coelho has to stick to the benefits-cutting measures agreed last month and go further still by "cutting unemployment benefits for some groups with preferential treatment," the official said.

A one-day long general strike was held last month against the labour reform which will curb holidays, decrease compensation for overtime work, and lower the amount of money received when being fired.

Restrictions to individual dismissals and working time flexibility are also part of the package. The commission hailed all these measures as "good progress", while Portuguese trade unions warned they are "killing the welfare state."