As expected, Brussels rejected the Inane Plan “B” Measure to Pay Workers in T-Bills following a Portuguese court ruling that certain austerity measures are unconstitutional.
Reuters reports Portugal must stick to agreed budget targets to get loan extension.
Portugal’s prime minister says the government will have to cut spending on health, education and social security to keep the country’s €78bn bailout programme on track.
Mr Passos Coelho said he had no alternative after the court decision but to make extra spending cuts that would have a significant impact on the welfare state. The budgets of state-owned companies would also be cut, he said but the premier ruled out more tax rises on top of record increases introduced in January.
“I have ordered ministries to cut expenditure to compensate for the effects of the court decision,” he said.
Mr Passos Coelho also faces a difficult task to convince international lenders that new spending cuts will keep deficit-reduction plans on target.
The decision by Mr Passos to cut spending on the welfare state is likely to intensify opposition pressure on the government to resign, potentially opening the way to an early general election.
“We have to do everything possible to avoid a second bailout,” the prime minister said.
Read that last line carefully. It is an admission Portugal is in need of a second bailout. One is coming up.
Mike “Mish” Shedlock