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Portugal Lurches into Austerity Trap

Government faces setbacks in attaining its deficit goals.

By Henrique Almeida, Bloomberg | Updated on July 11, 2012

Portugal’s international creditors may soon have to ease terms of the country’s bailout to prevent the plan from derailing as the government faces setbacks in attaining its deficit goals.

Prime Minister Pedro Passos Coelho’s struggle to meet deficit pledges were further hampered last week when about 2 billion euros ($2.5 billion) of planned cuts to pensions and civil servants’ holiday pay were ruled unconstitutional. With Portugal’s 10-year bond yield above 10 percent, returning to the markets next year may be untenable, requiring more international aid despite the premier’s insistence he won’t seek concessions.

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