Portugal Rejects European Aid to Avoid More Austerity

Portugal rejects more bailout funds after the supreme court strikes down a series of austerity measures.

Maria Luís Albuquerque and Jeroen Dijsselbloem, the finance ministers of Portugal and the Netherlands, speak in Brussels, March 10
Maria Luís Albuquerque and Jeroen Dijsselbloem, the finance ministers of Portugal and the Netherlands, speak in Brussels, March 10 (The Council of the European Union)

Portugal rejected more financial aid from other European Union member states and the International Monetary Fund on Thursday after its Constitutional Court struck down a series of austerity measures that were supposed to be implemented as a condition for the bailout.

“The government thinks that it is not the time to make decisions about substitute measures, a decision which has the consequence that we will not receive the last tranche of the program,” Maria Luís Albuquerque, the finance minister, told reporters in Lisbon.

Economists estimate that the failure to implement the latest austerity measures will raise Portugal’s deficit by some €700 million this year, making it harder to reach its budget goals.

However, the country, which formally exited the bailout program last month, has lately been able finance itself in bond markets. It no longer needs the last €2.6 billion tranche of the €78 billion bailout European countries and the IMF committed in early 2011 at the height of the continent’s sovereign debt crisis.

Albuquerque insisted Portugal would still reduce its deficit to the equivalent of 4 percent of gross domestic product this year and down to 2.5 percent next year.

“We believe this decision reinforces the credibility of the government,” she said. “This in no way invalidates our assumed commitments.”

In 2009, when the financial crisis hit Europe and Portugal’s debt stood at 70 percent of GDP, the government posted a deficit of more than €17 billion or 10 percent of economic output. It has since failed to bring the shortfall under the European 3 percent treaty limit while its debt last year equaled 129 percent of GDP. Its economy that year was still 15 percent smaller than before the crisis.

The conservative government of Prime Minister Pedro Passos Coelho that took office in 2011 has raised taxes, frozen public-sector salaries and provided incentives for civil servants to retire early, measures that have slowed spending and should enable Portugal to post a balanced budget by 2018. The economy is expected to grow 1.2 percent this year.