Portugal’s President has called into question the viability of his country’s austerity programme.
Cavaco Silva said in his New Year’s speech this week that he would request an inquiry from the country’s top court on whether planned spending cuts as well as a new supertax on pensions above €1,350 a month were constitutional.
He said his country would “honour its international obligations,” even though a negative court ruling could force the government to rewrite its 2013 budget.
He also said “there are well-founded doubts over whether the distribution of sacrifice [in the bialout terms] is just.”
He blamed the bailout for creating a “recessionary cycle” and he dubbed the programme “socially unsustainable.”
Portugal was forced to request an EU-International-Monetary-Fund (IMF) bailout worth €78 billion in May 2011 after seeing its credit rating cut to junk status and finding itself unable to finance its debt.
The country’s debt, the third highest in the eurozone behind Greece and Italy, is expected to peak at 124 percent of GDP in 2013.
It has won praise for the implementation of its bailout terms and is expected to return to fully self-financing itself on the debt market in September 2013.
The yields on 10-year government bonds fell to 6.7 per cent earlier this week, well down from a high of 17% in January 2013.
However, with the country expected to stay in recession in 2013 for the third successive year, the country’s unemployment rate has risen to 17 percent, with youth joblessness standing at just under 40 percent. Taxpayers are also set to feel further pain as the government bids to increase tax revenues by 30 percent.
The Portuguese courts have already ruled that several measures contained in the 2012 budget are unconstitutional.
Meanwhile, IMF managing director Christine Lagarde last week told German news weekly Die Welt that Portugal is in a group of countries that “can allow themselves to go a little more slowly … in the push to straighten out their public finances.”
Edward Gardner, the head of the IMF mission in Paris, also told reporters that slowing the pace of deficit reduction for a number of EU countries would be “more effective.”