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Parliament approves Portugal austerity budget

Published on 11/11/2011

Portuguese lawmakers gave preliminary approval Friday to the government's 2012 austerity budget aimed at putting the country's finances in order despite widespread discontent at some of the measures.

The approval, on a first reading, comes just as the Italian parliament votes on economic reforms demanded by the European Union in its fight against debt contagion, and as Greece makes progress on a new government to enact deep budget changes.

Prime Minister Prime Minister Pedro Passos Coelho’s centre-right government, elected in June, has a comfortable majority in parliament with 132 of the 230 seats.

The Socialists, who lost power in the polls, abstained in the vote while the extreme left, which counts 24 seats, voted against.

The budget is scheduled for a final vote on November 30.

Portugal was bailed out in May to the tune of 78 billion euros ($107 billion) by the European Union and International Monetary Fund and the government has pledged to raise taxes and cut spending, an unpopular mix which has hit growth hard.

The 2012 budget, described by Passos Coelho earlier in the week as “very tough,” will scrap annual bonus payments worth two months salary for civil servants and for pensioners with income above 1,000 euros per month.

The working day will be increased by 30 minutes in the private sector, while health and education spending will be slashed, topping off a series of measures already adopted in efforts to reduce the deficit.

Prime Minister Passos Coelho concedes that the measures are even tougher than those required under the EU-IMF bailout terms but says they are necessary to ensure its targets are met in the face of difficult economic conditions.

The government estimates that the budget will see the economy shrink 2.8 percent in 2012 while the EU puts the downturn at 3.0 percent, for the worst performance in the bloc.

Portugal followed Greece and Ireland in needing a bailout and EU, IMF and European Central Bank officials are currently in Lisbon to review progress under the bailout deal and decide whether to clear the next 8-billion-euro loan installment.

Under the accord, Portugal needs to reduce its public deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent by the end of 2011, but it stood at 8.3 percent earlier this year, putting that objective in doubt.