Saturday

1st Oct 2016

Portuguese PM speaks of 'national emergency' after court ruling

  • Coelho. Hundreds of thousands of Portuguese people took part in peaceful anti-austerity protests last year (Photo: consilium.europa.eu)

Portuguese Prime Minister Pedro Passos Coelho has warned that Portugal risks "collapse," a euro exit or a second bailout after a court ruling which deleted €1.3 billion of austerity measures in this year's budget.

Speaking in a TV address on Sunday (7 April), he used the term "national emergency" three times to describe Portugal's economic situation.

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He said the country's €78 billion EU bailout, agreed in 2011, is needed to "avoid a national collapse" and "for the maintenance of Portugal in the euro area."

He noted the Portuguese state is currently "dependent on the funding of our European partners to make payments, provide services, pay salaries and pensions, to keep the welfare state."

He added that one alternative "would be … to submit to another [bailout] programme."

But he said: "That is what we must avoid … We must do everything to avoid a second bailout. I cannot allow us to waste the sacrifices that the Portuguese people have made in recent years."

The court on Friday rejected four out of nine of Coelho's austerity measures in the 2013 budget.

It struck down cuts to public sector workers' pay and pensions, as well as cuts to unemployment and sickness benefits, calling them "a violation of the principle of equality and the principle of fair distribution of the public burden."

Portugal's top financial paper, the Diario Economico, estimated the deletions will cost the government €1.3 billion in terms of planned savings.

Coelho said in his TV speech that alternative ideas could be new cuts to social security, health and education. He said he will not raise taxes because this would jeopardise economic recovery and job creation.

He noted that he must respect the court for the sake of democracy and rule of law.

But he accused the judges of creating extra "fragility … uncertainty and unpredictability … risk" and said that some constitutional experts disagree with their decision.

He also accused the left-wing opposition of "demagoguery" after Socialist Party leader Antonio Jose Seguro called on him to step down.

"The country needs a different exit strategy from the crisis, one that prioritises economic growth … The country is living in a social tragedy. This needs to change and that change entails substituting the government," Seguro said also on TV at the weekend.

Portugal's economy is forecast to shrink by 3.2 percent this year, while unemployment is to climb from 12.7 percent last year to 19 percent.

But at the same time, spending cuts have seen the spread on Portuguese bonds vis-a-vis benchmark German papers fall from sky-high levels of almost 17 percent to below 6 percent.

For its part, the European Commission in a statement on Sunday declined to give Lisbon any extra leeway.

"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," it said.

It added that Portugal needs to stick to the deal if it wants lenders to extend their deadline for loan repayments.

German finance minister Wolfgang Schauble told German radio on Monday that "Portugal made a lot of progress in the last few years and is about to gain access to financial markets."

But he also warned that it "needs to take new [austerity] measures after the [court] decision."

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