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Portugal government defends fresh crisis cuts

Portugal’s government on Thursday defended a fresh round of unpopular salary cuts and public sector reforms imposed under the country’s international bailout deal.

After nearly three years of belt-tightening, the 2014 budget aims to save a further 3.9 billion euros ($5.3 billion), partly through cutting public sector salaries and pensions.

The government says the plan, which has sparked angry street protests, will help it rein in the country’s deficit as demanded by its international creditors so it can wrap up the bailout programme next year.

“It is a hard budget and very demanding for households, but it will help prepare a better future for all the Portuguese,” Prime Minister Pedro Passos Coelho told parliament at the start of a debate on the budget.

The budget plan is expected to be approved easily by parliament where a coalition led by the conservative ruling party holds a comfortable majority.

“This budget will be key to concluding” the bailout and to “closing the door on this period of extreme dependence” on outside lenders, said Coelho, who hopes to wrap up the rescue programme by next June.

Thousands of demonstrators protested on Saturday against the budget and further demonstrations were called for Friday, when parliament is due to vote on the first draft of the budget bill.

“This is not a state budget, it is a plan for cuts to make our lives poorer,” said Antonio Jose Seguro, leader of the main opposition Socialist Party.

“No one believes this budget will get the country out of the crisis.”

Portugal secured its 78 billion euro ($108 billion) rescue deal in 2011 from three international bodies — the European Union, European Central Bank and International Monetary Fund.

In return for the bailout money to prevent the indebted country from financial collapse, they demanded economic reforms to get Portugal’s public deficit down to four percent of output by 2014.

Economists warn the target will be hard to reach.

Ratings agency Fitch forecasts Portugal will overshoot it with a public deficit of 4.5 percent and warns that the budget risks being struck down by the Constitutional Court, which overruled certain austerity measures in 2013.

Portugal technically emerged from its recession in the second quarter of this year and is forecasting timid 0.8 percent growth for 2014, but its unemployment rate remains painfully high and is forecast to be at least 17.7 percent next year.

“Real progress has been made in the public finances, but at the price of a very deep recession,” said Jesus Castillo, an analyst at Natixis bank.

He warned that in the new budget, “the recessionary effects may have been underestimated again.”