LISBON, Portugal – Portugal plans to avoid the threat of needing another bailout by making another 4.8 billion euros ($6.3 billion) in cuts over the next three years, with measures including raising the retirement age by one year to 66 and laying off around 30,000 government workers, the prime minister said Friday.
Pedro Passos Coelho announced the proposals in a prime-time televised address to the nation. Portugal received a 78 billion euro rescue in 2011 after overspending, heavy debts and weak growth left it close to bankruptcy amid the eurozone’s financial crisis.
Passos Coelho warned the country couldn’t expect the rest of Europe to throw it another financial lifeline and said Portugal must honour the terms of the three-year bailout agreement, which demands deep cuts in spending.
Some wealthier northern European countries have shown signs of bailout fatigue as the continent’s southern nations, like Portugal, Spain and Greece, have gone to them for help. With the eurozone financial crisis appearing far from over amid a broad European economic slowdown, asking for more money could aggravate political problems.
“The idea that Europe will always come to our aid is wrong,” Passos Coelho said. He said Portugal must show “our European partners that they have no reason to doubt our commitment” to repairing the country’s public finances.
Failing to abide by the 2011 bailout agreement would be “disastrous” for Portugal’s international credibility and would entail leaving the euro, which he said would be “catastrophic” for the country.
The centre-right coalition government will likely have a hard time, however, selling its latest austerity measures to a disgruntled public.
Passos Coelho said he wants to give a full state pension to workers only when they reach 66; negotiate early retirement deals with government workers to get his target of 30,000 fewer staff; and increase the working hours of government employees to 40 hours from 35, the same as the private sector.
Many people blame the government’s spending cuts and tax hikes for a recession that is forecast to continue for a third straight year in 2013. Unemployment is at 17.5 per cent, and the government predicts it will reach 18.5 per cent next year.
Passos Coelho appealed for understanding. “People of Portugal, I know you are asking whether all the sacrifices will be worthwhile. I can assure you, they are,” he said.
“The benefits (of austerity) will come,” he said. “We cannot give up.”
He said he is willing to discuss his plans and possible alternatives with opposition parties, trade unions and business leaders. They have all rounded on the government in recent times as the broad national consensus which greeted the initial bailout agreement has frayed.
Two years of tax hikes and pay cuts have improved Portugal’s fiscal record, even if they hurt growth. Last year, the budget deficit stood at 6.4 per cent. In 2010, it was 10.1 per cent. Still, more needs to be done to hit the deficit target of 2.5 per cent by 2015 and make public finances sustainable in the medium term, Passos Coelho said.
“We haven’t yet resolved our public debt problem,” he said. “We’ve reduced it, but we need to cut more.”