Portugal PM says examining options for austerity measures

The Portuguese government is studying options over contested austerity measures, Prime Minister Pedro Passos Coelho said on Monday, but stressed that any changes would have to be approved by creditors.

“I am disposed to finding alternatives” to the disputed public spending cuts and reforms, but “it is indispensable that they be accepted by the ECB, IMF and EU,” Passos Coelho said after a meeting with representatives from unions and employers.

Meeting deficit targets is key for Portugal to receive more funds under a bailout worth 78 billion euros ($101.5 billion) negotiated last year with the European Union and International Monetary Fund, with the involvement of the European Central Bank.

After a recent audit of how spending cuts and reforms have been enacted, the EU and the IMF agreed to relax the country’s deficit targets for 2012 and 2013.

But the Portuguese population is fiercely opposing further austerity measures due to come into force in 2013.

Among contested moves is the government’s plan to raise employees’ social contributions from 11 to 18 percent of wages, while cutting those of employers from 23.75 to 18 percent in the hope of creating jobs.

“The government pledges to study measures favourable to fighting unemployment and to creating jobs,” the prime minister said, pointing out that the jobless rate was at a record high level exceeding 15 percent.

Passos Coelho also stressed that 13th and 14th month pay for civil servants and retirees would be scrapped in 2012 and 2013, but they will be “partially restored” the following year, since the move was found unconstitutional by the Constitutional Court.

The spending cuts and economic reforms required as part of the bailout have caused a recession, with the economy shrinking by 1.2 percent in the second quarter, much faster than the 0.1 percent rate in the first quarter.

The contraction is expected to reach 3.0 percent for the whole year.

Hundreds of thousands of Portuguese marched in Lisbon in mid-September and the country’s main union CGTP has called for further mobilisation on September 29 in Lisbon.