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29 August 2013

FT: Court delivers blow to Portugal bailout programme


Portugal's constitutional court has ruled that legislation enabling the government to fire public sector workers who cannot be retrained is illegal, blocking a reform that Lisbon sees as critical to meeting the terms of the country's €78 billion bailout.

The ruling announced on Thursday night came only five months after the court rejected public spending cuts of up to €1.3 billion, forcing the government to rewrite this year’s budget to meet deficit reduction targets agreed with international lenders.

The decision to reject the bill on "public sector requalification", which would have allowed the state to lay off workers permanently after they spent a year in reserve, means the government will have to rewrite a reform package aimed at cuts totalling €4.7 billion. It is the third time in just over a year that the court has rejected important government reforms that it judged to contravene the constitution.

The court's ruling is also expected to renew concern among investors over the possibility of legal barriers derailing the three-year bailout programme, which Portugal is scheduled to exit in mid-2014. Officials from the so-called troika of lenders – the European Commission, the International Monetary Fund and the European Central Bank – are due back in Lisbon shortly to assess the government’s progress with the adjustment programme. The rejected bill was part of an extensive reform package agreed with the troika that seeks to make "permanent" cuts in public spending by cutting back state services and potentially laying off tens of thousands of public sector workers, particularly teachers and clerical staff.

Full article (FT subscription required)



© Financial Times


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