Brussels, 13/06/2014 (Agence Europe) - On Friday 13 June, the Portuguese government decided to turn down the final batch of aid from the European Financial Stability Mechanism (€1.7 billion that is available for the rest of the month) as part of its three-year financial bailout.
To be eligible for the aid, Pedro Passos Coelho's government would need to unveil budget measures totalling €600 million to make up for shortfalls in the 2014 budget caused by the country's constitutional court ruling on 30 May that earlier planned budget measures were unlawful (see EUROPE 11092).
Portuguese Finance Minister Maria Luis Albuquerque said it would not be possible to unveil measures by 30 June so the final batch of aid will not be available. The Portuguese government wants to await other constitutional court rulings before deciding on any replacement budget measures.
Taking note of the decision, the EU Council of Ministers' Economic and Financial Committee commented in a press release: “We understand that the authorities need some time to assess the rulings of the Constitutional Court to be able to address the resulting budgetary shortfalls with compensatory measures that are adequate to attain the agreed fiscal targets. This decision should also be seen in the context of the government's comfortable cash position and the significantly improved access to financial markets”. On Wednesday, Portugal successfully issued €975 million of ten-year bonds at a yield of less than 3.5%.
The troika of lenders (European Commission, European Central Bank and International Monetary Fund) said it had taken note “of the Portuguese government's intention to await the pending Constitutional Court rulings concerning adopted budgetary measures before formulating a comprehensive response. These rulings are not expected before the IMF and EU programme expires at the end of June. We take note of the government's decision not to seek an extension of the programme and to allow its expiration without completing the 12th and final review and without receiving the associated final tranche”. The troika welcomed Portugal's commitment to meet its budget targets (a public deficit of 4% in 2014) and continue with the structural reform process.
On 30 May, the Portuguese constitutional court rejected three of the four measures referred to it by the Left-wing opposition, including a pay cut for civil servants earning more than €675 a month, but the pay cut was introduced in January and the ruling is not retroactive. The court also rejected a measure to cut unemployment benefit by 6% and sickness benefit by 5%, and strings being attached to widows' pensions. In order to cut the budget in other areas to make up for these rulings, it is planned to make temporary cuts in the pay of civil servants earning more than €1,500 a month.
In mid-May, Portugal completed its three-year bailout without requesting any further aid from the European Stability Mechanism in the form of a preventative credit line. (MB)