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President Aníbal Cavaco Silva has convened a meeting of the state council, his top advisory body, later this week in an effort to ward off a political crisis, while hundreds of thousands of demonstrators took to the streets on Saturday in the country’s biggest anti-austerityprotest to date.
José Manuel Barroso, European Commission president and a former prime minister of Portugal, warned that a political “rupture or polarisation” would have an extremely negative impact and could “bring into question the climate of confidence that Portugal has been gradually building”.
However, Mr Passos Coelho said unemployment, currently above 15 per cent, could reach 17 per cent next year if the social security changes were not implemented. His announcement came shortly before Portugal’s international lenders – the so-called “troika” of the European Commission, International Monetary Fund and European Central Bank – agreed to give Lisbon an extra year to meet previously agreed deficit-reduction targets.
Partly a response to calls from opposition parties and other “social partners”, the decision to relax the targets came with more sombre economic forecasts for next year, with the government projecting the economy would contract by another 1 per cent after shrinking by an expected 3 per cent this year. It had previously forecast a slight recovery in 2013.
In response to the new austerity package, the centre-left Socialists, the main opposition party, said they would vote against Mr Passos Coelho’s 2013 budget proposals when they went before parliament in October and table a censure motion against the government if the social security changes were not withdrawn.
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