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Portugal must choose between austerity or ‘collapse’: PM

Published on 22/04/2013

Portuguese Prime Minister Pedro Passos Coelho said Friday that his heavily indebted nation had to adopt fresh austerity measures following a court decision in order to avoid being locked out of sovereign debt markets since that could mean "the country would collapse."

“We must quickly convince our European partners that the Constitutional Court’s decision does not compromise our external commitments,” Coelho said during a parliamentary debate on the new measures.

“Had we done nothing, Portugal would have failed to honour its commitments. We would not receive the next payments (of international aid) and we would not be able to return to state finance markets. The country would collapse,” he said.

On Thursday, the government announced budget cuts and other measures estimated to be worth around 600 million euros ($785 million) to meet targets it has set with international creditors, following a rejection of previously proposed austerity measures by the Constitutional Court.

Representatives of Portugal’s creditors, the European Union, International Monetary Fund (IMF) and the European Central Bank (ECB), have approved the budget cuts, details of which were to be released along with a revised budget to be sent to parliament in May.

On April 5, the Portuguese Constitutional Court rejected several measures contained in the 2013 budget which deprived the government of around 1.3 billion euros in savings.

The ruling made it harder for the government to reduce Portugal’s public deficit to 5.5 percent of GDP this year to keep it eligible for funds under a 78-billion-euro bailout from the EU and IMF.

But Coelho then vowed not to abandon austerity, and to find other ways to reduce public spending by around 1.2 billion euros this year.

Validation of the new measures by EU-IMF-ECB representatives was needed to release the eighth payment, of 2.0 billion euros, in aid and for approval by eurozone finance ministers of a seven-year delay in credit reimbursement payments.