Portugal’s supreme court has ruled that public sector pay cuts of up to 12 per cent, as well as cuts to pensions and welfare benefits demanded by the EU were unconstitutional.
It is the latest in a series of court rulings rejecting EU austerity measures and challenged the right wing government of Pedro Coelho since Portugal was forced to take emergency loans in 2011.
It is the fourth time that the court strikes down austerity-linked measures, sparking trade union calls for Coelho to resign.
The government now needs to propose alternative spending cuts or tax rises to make up the lost revenue in order to meet EU demands. Under EU rules Portugal must trim its budget deficit to four per cent by the end of this year and to 2.5 percent in 2015.
The country’s debt is also a problem – with the EU bailout increasing the overall indebtedness from 93 per cent of GDP to 129 per cent.
An EU official claimed that the European Commission’s austerity demands would “promote reforms that boost demand and competitiveness”.