AN AUSTERITY package announced by Portugal to prevent a Greek-style debt crisis has been welcomed by European Union officials and financial markets, but dismissed by the country’s trade unions as “unjust and humiliating”.
Portugal’s cost of borrowing fell yesterday from record highs reached earlier in the week as financial markets responded positively to the €5.1 billion package, which includes cuts in public sector wages and an increase in value added tax.
Olli Rehn, the EU’s economic and monetary affairs commissioner, described the package as a “decisive step” towards meeting the country’s deficit targets.
Jean-Claude Trichet, president of the European Central Bank, said Portugal was moving in the “right direction”.
However Manuel Carvalho da Silva, head of Portugal’s CGTP-Intersindical trade union federation, said the Socialist government had been forced into making “unjust and humiliating sacrifices”. Protests against the measures would almost certainly include a general strike, he said.
After Ireland, Greece and Spain, Portugal is the last peripheral euro zone member to introduce severe fiscal measures in response to market pressure to bring its public finances under control.
José Sócrates, the prime minister, announced the package as figures for the first seven months of the year indicated his minority government was unlikely to meet a commitment to cut the budget deficit from a record 9.4 per cent of gross domestic product in 2009 to 7.3 per cent this year.
The centre-right opposition Social Democrats, whose agreement is essential for the 2011 budget to be approved by parliament, have condemned proposed tax increases. But an expected abstention by the party would ensure passage of the bill.
Achieving this year’s deficit target has been virtually assured by an agreement with Portugal Telecom to transfer its pension funds to the state. This will ensure €2.6 billion in extraordinary state income this year in a deal described as “creative accounting” by several Lisbon analysts. The new austerity measures include a 5 per cent cut in the public sector wage bill and a 2 percentage point increase in VAT to 23 per cent, one of the highest in the EU. Cuts in public sector wages, ranging from 3.5 to 10 per cent, will affect workers earning more than €1,500 a month.
Separately Moody’s, the credit rating agency, downgraded Spain’s government bonds, citing weak economic growth, the difficulty of cutting the budget deficit and higher borrowing needs. Spain’s credit rating was cut one level to Aa1.
