Portugal court strikes down TROIKA’s austerity measures as unconstitutional

By Bloomberg News: Portugal’s highest court on Friday blocked some of the government’s planned cuts in payments to state workers and pensioners for a second time, delivering a setback to Lisbon’s austerity strategy under a $101 billion international bailout. 

The Constitutional Court last year stopped the government from withholding the equivalent of two monthly salary payments to state workers this year and in 2014. In response, the government withheld only one of the two payments it planned to cut this year, and in October it announced other measures, including $4.8 billion in tax increases, to meet the 2013 deficit target.

The plan to withhold the payments “included a violation of the principle of equality and the principle of fair distribution of the public burden,” Constitutional Court President Joaquim Sousa Ribeiro told reporters in Lisbon.
The court also ruled that cuts to unemployment and illness subsidies were unconstitutional. The court upheld a tax of 3.5 percent to 10 percent on pension income exceeding $1,750 a month, as well as other tax increases. In all, the court approved five of nine measures that it was asked to review by the country’s president, Anibal Cavaco Silva.

Abebe Aemro Selassie, the head of the International Monetary Fund’s mission to Portugal, said in a Jan. 18 conference call that he didn’t think the court’s review of this year’s budget could bring the whole program “off course.” The court was asked to review a “relatively small part” of the budget’s measures, he said.
Even so, larger adjustments to the budget could “cause trouble” with the so-called troika of international funders, the IMF, the European Union and the European Central Bank, Christian Schulz, an economist at Berenberg Bank, told clients before the decision was announced.

Portuguese Prime Minister Pedro Passos Coelho called a special cabinet meeting for Saturday, an official at his office said.
Passos Coelho is battling rising joblessness and lower demand from trading partners. The troika last month gave its blessing to less ambitious targets for the country’s budget deficit. The government forecasts that the economy will shrink 2.3 percent this year, twice as much as previously estimated. Source

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