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28 November 2012

FT: Portuguese PM keeps faith with austerity

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Portugal's 2013 austerity budget may pose risks to the debt-laden economy, but the government is determined to stick to the recovery plan agreed with its international creditors, according to Pedro Passos Coelho, prime minister.

The measures, introduced amid the harshest recession since Portugal emerged in 1974 from a rightwing dictatorship, are aimed at reducing the budget deficit to 4.5 per cent of economic output from an anticipated 5 per cent this year. Their broader purpose is to reassure investors that Portugal will fulfil the terms of a €78 billion financial rescue arranged last year with its European partners and the International Monetary Fund, with the aim of regaining access next year to sovereign bond markets.

Asked if Portugal faces the danger of descending into a Greek-style slump, Mr Passos Coelho replied: “Theoretically, it’s possible. But I believe we are adopting the necessary measures to avoid such a scenario . . . I’m not adopting more austerity measures than are needed to reach our targets.”

Far from diluting his policies, Mr Passos Coelho intends to present Portugal’s creditors in February with a two-year plan to save another €4 billion in public expenditure Giving the first public indications of where the savings might be made, he said cuts to overtime hours paid to state workers in the health service could eke out more than €100 million. The government could save another €80 million by reducing its bills to the pharmaceutical sector.

However, he added that his government’s cuts would have no impact on 90 per cent of pensioners, and anyone with a monthly income of less than €600 would also be unaffected.

Full article (FT subscription required)

© Financial Times

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