Portuguese top court strikes again

The measure would have saved €167 million next year, as part of a larger package of budget cuts required by international creditors in return for the €78 billion bailout.

The court ruled the measure unconstitutional, saying it violates "guarantees of secure employment" and the principle of trust between employer and employee.

Prime Minister Pedro Passos Coelho will now have to come with an alternative measure to replace this one. Earlier this month, he had warned against a negative verdict, saying it could jeopardize the bailout.

"If we don't have the money to pay salaries and pensions, what do we do?" he said then. "We do what businesses do - cut personnel and lower salaries."

It is the third time this year that the court strikes down austerity-linked measures that also have caused a rift in the coalition government, barely managing to stick together after a major crisis earlier this summer.

Trade unions have meanwhile repeated their calls for Coelho to step down. Armenio Carlos, leader of the country's largest trade union confederation, said the government got "three red cards in a year" and should resign.

Even if the struck-down measure did not have a big financial scope, the court ruling casts doubt on the government's capacity of sticking to the promises it made to slash spending in return for the bailout.

So-called troika officials from the European Commission, the International Monetary Fund and the European Central Bank are due in Lisbon early September to assess how the country is implementing reforms and authorize or delay the payment of the next bailout tranche.