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Portugal MPs to adopt unpopular austerity budget

Published on 25/11/2012

Portugal's parliament is due to adopt on Tuesday a massively unpopular 2013 budget that will make unprecedented austerity reforms in a bid to satisfy international creditors helping the country fight off economic collapse.

Prime Minister Pedro Passos Coelho’s centre-right government has a comfortable majority in parliament, virtually guaranteeing the budget will pass.

But lawmakers will face anger from many constituents, with a protest outside parliament against “austerity and recession” called by the country’s main labour federation, the CGTP.

The CGTP organised a crippling general strike on November 14, a day of anti-austerity protests across southern Europe that boiled over into sporadic clashes — including in Portugal, where protests outside parliament turned violent, leaving 50 people wounded.

Police officers, soldiers, firefighters and students have also staged major protests in recent weeks as public angst over the country’s dire economic straits has grown.

The Portuguese economy, in recession since 2010, is expected to contract by three percent this year and one percent in 2013, while unemployment hit a record 15.8 percent of the workforce in the third quarter of this year.

The European Union and International Monetary Fund granted the country rescue funding of 78 billion euros ($100 billion) in May 2011 in exchange for drastic economic reforms aimed at reducing the country’s swollen public deficit and debt.

But the austerity underpinning the reforms is weighing heavily on economic activity and the government’s ability to fight unemployment.

The new budget aims at 5.3 billion euros in additional savings, achieved in part through further spending cuts but mostly through a tax hike that even Finance Minister Vitor Gaspar acknowledged is “enormous”.

Next year, the government will also introduce a package of state reforms seeking to cut public spending by another four billion euros by the end of 2014.

German Chancellor Angela Merkel warmly praised the government for its efforts at reform during a visit to Portugal this month, and the country has just passed a new quarterly audit by its creditors, the EU, IMF and European Central Bank — the so-called “troika”.

But the IMF has acknowledged the country faces serious economic risks.

“The near-term outlook is uncertain, and sizeable medium-term economic challenges remain,” said an IMF statement on November 20.

As the government fights an uphill battle to cut spending and raise tax revenues wherever it can, the IMF said the success of Portugal’s international rescue plan would depend in part on a factor beyond the country’s control: the economic environment across the 17-nation eurozone.

The Socialist opposition has for its part condemned the austerity policies as “excessive”, despite signing off on the international rescue plan.

“The deficit is not under control, the debt has risen to nearly 120 percent (of gross domestic product), unemployment is the highest in our history and the economy is collapsing,” Socialist party secretary general Antonio Jose Seguro said Saturday.