Portugal braces for tougher life amid debt rescue

The Portuguese people are at a turning point with a debt rescue to slash living standards and trigger a two-year recession, but the prize is a dynamic comeback after 2013, top officials told the eurozone member on Thursday.

The conditions imposed to avert default on June 15 are “tough”, “necessary” and “fair” but will require a “major” effort for the country, the third eurozone state to need an international bailout, they said.

The head of the International Monetary Fund Dominique Strauss-Kahn and EU Economic Affairs Commissioner Olli Rehn said in a statement in Brussels that Portugal had to make “major national efforts” to overcome its deficit and debt crisis.

They said that the success of a “socially-balanced” programme “will require a truly national effort.”

“We recognise that this programme will require major efforts from the Portuguese people,” they added of what they termed a “defining moment” for the country.

The reforms and cutbacks imposed are aimed at helping “reduce the social costs of the economic changes that are needed to build a better future for the country,” the bailout chiefs said, while adding that “significant challenges lie ahead.”

The European Central Bank in a statement said that the programme contains “necessary elements to bring about a sustainable stabilisation of the economy.”

“It addresses in a decisive manner the economic and financial causes underlying current market concerns and will thereby contribute to restoring confidence and safeguarding financial stability in the euro area,” it added.

Finance Minister Fernando Teixeira dos Santos, in the first official assessment of the rescue said the economy would contract by “about” 2.0 percent this year and next, but would recover in 2013 driven by exports, paving the way for a “more dynamic economy.”

Many reforms and cutbacks have already taken by the outgoing Socialist government in an ultimately unsuccessful attempt to avoid becoming the third eurozone lame duck on bailout crutches.

Portugal’s public deficit of 9.1 percent last year must be cut to the eurozone ceiling of 3.0 percent of output by the end of 2013.

Under the rescue programme pensions exceeding 1,500 euros ($2,230) per month will be cut, spending on health services will be reduced and VAT sales tax on some products will rise.

There will be a vast additional programme of privatisations, and a fund will be set up to support banks if they need help.

But the programme does not require abolition of a 13th and 14th month of pay for civil servants as many had feared.

There are also measures to help raise competitiveness in the economy, including a cut in charges on employment.

The measures have come under strong attack from some quarters, notably from trades unions.

“Living conditions for workers, for pensioners and for a large part of the population risk getting worse,” said union leader Manuel Carvalho da Silva, calling for a strike on Friday.

However the main centre-right opposition party said Thursday it would back the 78-billion-euro bailout ($116 billion) if elected in early elections on June 5.

Social Democratic Party leader Pedro Passos Coelho vowed Thursday his “total commitment with the objectives” of the programme, earlier saying it was “tough” but “necessary”.

The early general election was precipitated by the refusal of the opposition to approve austerity measures decided upon by the Socialist government without consultation.

The EU, European Central Bank and IMF have said that a broad consensus across the political spectrum is essential: a guarantee the conditions attached to the three-year debt rescue will be applied, whoever wins the election.

Portugal faces a deadline of June 15 to get external aid when it has to redeem debt of about 5.0 billion euros or default.

AFP / Expatica