The Portuguese constitutional court has ruled that planned cuts in salaries to state workers and payments to pensioners were in breach of the constitution. The measures were expected to save as much as €1.3billionn annually, a large slice of the €5billion of fiscal consolidation planned for this year. Mr Passos Coelho said that he had asked ministries to slash spending in order to avoid further tax rises.Lisbon cannot find new savings to meet the conditions of its €78billion bail-out.
Pedro Passos Coelho, Portugal’s prime minister, said last night that the rejection posed “serious obstacles and risks” to Portugal’s progress in meeting its bail-out commitments, but that it would “do everything to avoid a second rescue”.
“The government is committed to all the objectives of the programme,” he said.
Luis Marques Guedes, secretary of state for cabinet matters, said at the weekend: "The constitutional court's decision places serious difficulties on the country to comply with the goals and budget targets it has to meet. The government doesn't agree with the interpretation of the constitution."
The single currency bloc has already been destabilised by Cyprus and now faces fresh uncertainty if Lisbon cannot find new savings to meet the conditions of its €78billion bailout.Cyprus finalised the terms of a €10bn (£8.4bn) bailout this week with the troika of creditors, the European Union, the European Central Bank and the International Monetary Fund.
The island nation secured a financial lifeline last month to avert financial collapse, at the price of imposing losses on depositors with holdings above €100,000 at Cyprus's two largest banks, the Bank of Cyprus and Laiki.Cyprus is determined to stay in the euro after its painful rescue – "leaving would be like jumping into the abyss" Styliandes said.
telegraph.co.uk
guardian.co.uk
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