Portugal sees no scope for further cuts

City A.M. Reporter
PORTUGAL’S finance minister said in a newspaper interview yesterday he did not know what additional austerity steps could be introduced if market scepticism about the country’s ability to cut its deficit persists.

The minority Socialist government included deep spending cuts and tax hikes in the 2011 budget that it presented last week, but must win the support of the opposition for the bill to pass in parliament.

Finance minister Fernando Teixeira dos Santos said in a separate TV interview that Portugal would have to ask for a bailout from the European Union and IMF if the budget did not receive a green light from parliament. He was asked whether the austerity measures in the budget would be the last and replied: “I don’t see very well what else can be done.”

“I hope and I am confident that these (measures) will have an immediate impact,” he said. “But we have to look at what is going on. Markets are nearly insatiable over austerity measures of this kind.”

Portugal announced spending cuts in May, but then came under pressure from financial markets and Brussels to do more. The risk premiums on its bonds hit euro lifetime highs at the end of last month on concerns about its ability to cut the budget deficit. The government is aiming to trim the deficit to 4.6 per cent of GDP next year from a projected 7.3 per cent in 2010. Teixeira dos Santos said the biggest concern in the markets was that the measures contained in the budget may not pass.

The opposition Social Democrats (PSD), who object to tax hikes, have remained silent on whether they will back the budget in parliament. They are expected to make their position known after a meeting on Tuesday.

Failure to pass the budget would likely lead to political paralysis and send bond yields spiralling higher.