Portugal’s budget: Constitutional difficulties

A WEEK ago Pedro Passos Coelho, Portugal’s centre-right prime minister, faced the unpopular task of cutting public spending by €4 billion ($ 5 billion) over three years to comply with his country’s €78 billion bail-out programme. Then, on April 5th, the constitutional court struck down previously planned cuts in public-sector pay, pensions and benefits. He now has to find cuts worth €5.3 billion to keep the programme on track to end in May 2014. The court’s ruling raises doubts over whether that is now possible: in effect, might Portugal need a second bail-out?After three months’ deliberation, the court rejected four out of nine budget cuts before it. The 13 judges found that a plan to trim pay and pensions by eliminating one of two extra “bonus” months paid in the summer and at Christmas flouted a constitutional requirement that public- and private-sector workers and pensioners be treated equitably. The court also ruled against cuts in sickness and unemployment benefits made in January, arguing that minimum payments established in law cannot be lowered.Before Portugal can receive the next €2 billion loan instalment, Mr Passos Coelho now has to persuade the European Union and the IMF that he can find the €5.3 billion in cuts: a tall order indeed. A decision on a seven-year extension to the maturity of Portugal’s euro loans—an easing of financial terms that Mr Passos Coelho…

The Economist: Europe

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