Portugal looks likely to backtrack on its plans to finance a reduction in company costs through raising workers contributions, and is searching for alternative austerity measures. The previous plans had provoked a backlash from the country’s workers, as it would have been the equivalent to losing a month’s wages.
Now the Portuguese Prime Minister needs to convince employers and trade unions that further increases in taxes, coupled with spending cuts are necessary in order for the country to meet its €7 billion bailout programme.
In early September the county had received praise from the International Monetary Fund and the European Union for sticking to a tough austerity regime, but this latest move proved to be too much for voters to cope with.
It looks as if the unions will not be prepared to compromise in any way, and will not accept any proposals involving a reduction in wages. If this happens then it could result in political instability and a rise in social tensions that could ultimately derail the austerity programme.
It is necessary for Portugal to find ways of making even deeper cuts as tax revenues have fallen, and the global economic outlook is deteriorating. In September the troika, which consists of the European Central Bank, the European Commission, and the International Monetary Fund, agreed that Portugal should be given another twelve months to meet fiscal targets previously agreed. The revised budget deficit is now 5% of economic output for this year, up from 4.5%, and for 4.5% in 2013, up from 3%.