By: DailyForex.com
Portugal became the third Eurozone member state to receive an EU/IMF bailout (worth €78 billion) when its borrowing costs on the money market became unsustainably high in May last year. As with all of the bailouts, the money was to be paid out in tranches, subject to the approval of an IMF/EU/ECB troika that adequate progress was being made on the economic reforms agreed to with the bailout. The EU and the IMF have praised Portugal for the measures it has already taken to get its deficit under control.
The government has managed to get a further austerity budget approved by parliament, but it faces a final vote on 27th November. The budget will introduce further, substantial tax rises including a new tax on financial transactions and significant hikes on property and income taxes. The moves are necessary to meet Portugal’s targets for deficit reduction under the bailout agreement.
In addition to the second vote, the package could be subject to a legal challenge in the courts on the grounds that the budget breaches constitutional rules. A government proposal to restrict Christmas holidays and bonuses for public sector workers was struck down by the constitutional court.
The measures will be hugely unpopular with the electorate who have already seen substantial cuts to their disposable income, notably workers within the public sector. The bill was opposed by the Socialist party, but the governing coalition’s majority was sufficient to see the budget bill safely over this parliamentary hurdle. Currently, unemployment within Portugal stands at a record level of 15.7% with a further 2.6% of the workforce made idle since this time last year. The unemployment level is the fourth worst within the Eurozone.