The cost of borrowing for Portugal’s government has risen after the country’s constitutional court rejected a bill that would have effectively allowed public sector workers to be fired.
The bill was key to long-term spending cuts and the court’s decision alarmed investors as it could now throw out more of the government’s planned savings measures.
Portugal is having to cut spending to meet the austerity terms of its bailout loans from the European Union and the International Monetary Fund.
The court has rejected large parts of the government’s deficit-cutting plans twice since the country accepted a bailout in mid-2011, each time forcing it to come up with alternative measures.
The parliament-approved measure, worth an estimated net 170 million euros in spending cuts in 2014, is one of a package intended to contribute to spending cuts worth 4.7 billion euros that Lisbon has promised its international lenders by the end of 2014.
Filipe Garcia, head of Informacao de Mercados Financeiros economic consultancy in Porto, said: “The government should be able to come up with alternative measures, and this one was rather small within the programme. But it’s symbolic and shows how difficult reducing the size of the state is in Portugal and Europe as a whole.”